Coming off a May drubbing, U.S. stocks experienced more downside to start June, a month this historically unkind to equities. In June’s first trading day, the Nasdaq Composite and the S&P 500 lost 1.6% and 0.3%, respectively. That after the S&P 500 slipped by 5.7% last month.
The Dow Jones Industrial Average was somewhat better by comparison, adding 0.02% on Monday. However, potentially significant problems still linger for the blue-chip index. Some marquee names in the Dow are facing technical issues that could portend more near-term downside.
Let’s start with industrial machinery giant Caterpillar (NYSE:CAT). The largest maker of construction equipment is coming off a May loss of just over 13%, so Monday’s modest gain for shares of Caterpillar could be taken as a positive sign.
However, the stock has some work to do to snap out of a technical scenario known as the “death cross.” That is when a stock’s 50-day moving average slides below its 200-day line, something that occurred in Caterpillar stock last week.
Why It’s Important
Caterpillar’s technical woes are important for several reasons. First, the company resides in the cyclical industrial sector, the Dow Jones’ largest sector weight at 20.43%. Cyclical sectors are usually good gauges of investors’ willingness to embrace riskier assets. Second, Caterpillar is the 15th-largest stock in the Dow, meaning its place in the blue-chip index is not small enough to buffer the rest of the benchmark from this stock’s struggles.
Perhaps more importantly is this final reason: Caterpillar is not the only Dow stock knocking on the door of a death cross. Boeing (NYSE:BA), Exxon Mobil (NYSE:XOM) and Johnson & Johnson (NYSE:JNJ), three other Dow members, are also close to death cross territory.
“Sixteen of the 30 names in the Dow are now in some sort of bearish technical setup at this point in time. If you do the math on the S&P 500, you’ve got about 15% of the S&P 500 now below its December lows,” said Craig Johnson, chief market technician at Piper Jaffray, in an interview with CNBC.
As it pertains to Boeing, technical erosion in the aerospace and defense giant is particularly problematic for the Dow Jones because the it is a price-weighted index, meaning the member with the largest price tag is the benchmark’s largest component. That honor currently belongs to Boeing, which represents 9.33% of the Dow.
Combine Boeing with Caterpillar, Exxon Mobil and Johnson & Johnson and we’re talking about 18.11% of the index being on the cusp of a death cross.
Bottom Line on the Dow Jones Today
Stocks remain in a tenuous place, which is not the best of news when considering the historically weak tendencies of major U.S. benchmarks in the month of June.
Consider this: Just seven of the Dow’s 30 components notched gains in May. None of the four Dow stocks mentioned in this article so far were among them.
One of the Dow names currently impressing is property and casualty insurance behemoth The Travelers Cos. (NYSE:TRV) The ninth-largest member of the blue-chip index jumped 1.74% last month and resides near record highs.
Shares of Travelers yield 2.25% and the stock appears attractively valued relative to some other marquee Dow names, but those may not be the best reasons to consider the insurance stock right now. Perhaps the best reason for investors to consider Travelers right now is that the company, as the stock’s recent price action suggests, is not vulnerable to the trade war being waged on multiple fronts by the White House.
Todd Shriber does not own any of the aforementioned securities.
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