The Dow Jones Industrial Average continues its downward trend, highlighting its limitations as a price-weighted average. Investors are focusing on oversold opportunities in the broader market, with additions made to Home Depot and BlackRock positions.
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Tuesday markets: The major U.S. stock benchmarks were lower across the board Tuesday afternoon ahead of Wednesday's pivot Federal Reserve decision on interest rates. The Dow Jones Industrial Average remains on pace for its ninth straight negative session, a sour feat last recorded in 1978.
The Dow's recent struggles are getting a lot of attention, but investors need to remember that the 30-stock gauge has some major limitations that skew its headline performance. Our colleague Yun Li explored them in a piece published earlier today on CNBC.com. It has a lot of good insight, but among the most vital takeaways is that the Dow is a price-weighted average, meaning companies with higher stock prices have a larger influence. In the S&P 500 and Nasdaq Composite, each stock is assigned a weighting based on its market valuation. This nugget in Li's story drives the point home: 'price-weighted nature means that it's not capturing the massive gains from megacap stocks as well as the S&P 500 or the Nasdaq. Although Amazon, Microsoft and Apple are in the Dow and are all up at least by 9% this month, it's not enough to pull the Dow out of the funk.' It's not entirely sunshine and rainbows in the S&P 500. There's been growing concern about breadth in the broad market index, with more stocks moving lower than advancing. That dynamic is likely behind the market ending Monday's session even further into oversold territory, according to our trusted momentum indicator, the S&P 500 Short Range Oscillator. However, our discipline says to look to put money to work when the market is oversold, which is exactly what we did Tuesday afternoon, adding to our positions in Home Depot and BlackRock. Both stocks have seen weakness in recent days, but remain fundamentally attractive businesses
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