March 2020 has so far been a rough month for investors. At the same time, the world is watching all major indices, and what they’re seeing is not good. Financial markets are reeling because of the Education Websites threat of the coronavirus and the impending Saudi Arabia-Russia oil price wars. The Dow is perhaps one of the most battered among the casualties of this worldwide panic.
What happened on Black Thursday
On March 12, 2020, the world witnessed major stock indices and financial markets plunge into the bear market territory.
The Dow Jones Industrial Average recorded its worst single-day point drop ever on Thursday, losing 2,352 points to close at 21,201points.
The 10% fall also represented the worst single-day percentage drop since Black Monday 1987, during which the Dow lost 22.5% in a single day.
But Why Is It a Big Deal?
The Dow is among the most important barometers of financial markets. When people talk about the market’s movements, whether it’s up or down, or good or bad, they are most likely referring to the movements in the Dow.
A sharp single-day loss in the Dow means something bad has happened, or is happening, in the financial sector and the world. It can’t be any good news.
The creator of the DJIA was Charles Dow, who created his first stock index in 1885. It contained two capitalized industrial companies and 12 capitalized railroad companies.
The goal was to track US economic performance by monitoring companies considered to be the foundations of the economy.
In 1886, Dow changed the index. It then contained 10 railroads and two industrials. Dow recognized the importance of the industrial sector in the 1890s so he again changed the index to consist solely of industrial stocks.
These stocks are considered the original 12 Dow stocks:
- American Cotton Oil
- American Sugar
- American Tobacco
- Chicago Gas
- Distilling & Cattle Feeding
- General Electric
- Laclede Gas
- National Lead
- North American
- Tennessee Coal and Iron
- US Leather pfd.
- US Rubber
Today, the Dow tracks 30 blue-chip companies; the most Forex Brokers List highly capitalized and influential companies in the US economy. It has also become the financial media’s most referenced US market index and remains a good indicator of the general market.
Many believe that when stocks in the DJIA start to show weakness, the US economy might be in for a slowdown.
There are two other Dow indices, and they cover transportation and utilities. They can also signal market weakness and economic trends.
There is the so-called Dow theory, which states if any of the three Dow indices start to diverge in direction during an uptrend, it’s time to get cautious. In a nutshell, the three Dow Jones indices represent the major areas of the US economy, which are industrials, transportation, and utilities.
When one is showing weakness, there might be weakness in store for the other two—and the US economy in general.
So, the historic Black Thursday 2020 fall of the Dow is more important than everyone thinks. It signals the potential coming of a recession.