HFM
Well-known member
Date: 14th May 2025.
Is the Dow Jones Oversold Despite Pharmaceutical Stock Selloff?
Trading Leveraged products is Risky
All US indices rose in value on Tuesday except for the Dow Jones, which fell 0.64%. Very rarely, almost all global indices increase in value while one of the largest declines. What, then, is driving the Dow Jones’ decline despite the favourable market conditions?
Pharmaceutical Stocks Crash
One of the reasons why the Dow Jones was unable to mirror the bullish tone seen amongst the S&P 500 and NASDAQ was due to the Pharmaceutical sector. Approximately 14% of the weight within the Dow Jones is exposed to Pharmaceutical stocks, which significantly declined on Tuesday. The downward price movement within this sector was due to President Trump confirming that prescription drug prices must fall by almost 60%.
Here is the performance of pharmaceutical stocks in the Dow Jones on Tuesday:
* UnitedHealth Group stocks fell 17.79%
* Amgen Inc. stocks fell 1.57%
* Johnson & Johnson stocks fell 3.70%
* Merck & Co. stocks fell 4.72%
According to President Trump, the cost of prescription drugs in the US is sometimes up to 10 times higher than in other countries. This is despite the drug being ‘produced in the same laboratory’ using the same method and ingredients. Therefore, Trump is proposing that pharmaceutical companies lower the cost in the US and increase the cost elsewhere. However, this is triggering fear amongst investors and is prompting a selloff in the sector.
US Drug Prices Vs Other Countries
In addition to this, UnitedHealth Group stocks are under immense pressure due to the above and the company’s CEO has resigned. UnitedHealth Group in this quarter missed their earnings and revenue expectations for the first time since the 2008 banking crisis, and also gave poor guidance for the upcoming quarter.
Defensive Stocks Weaken Due To Improved Sentiment
Another reason for the Dow Jones’ weak price movement is its exposure to defensive stocks. Defensive stocks tend to do well during ‘risk-off’ conditions, while they may underperform in favourable stock market conditions. Defensive stocks within the Dow Jones include the following stocks:
McDonald’s - Stock fell 1.04% on Tuesday
Procter and Gamble - Stock fell 1.35% on Tuesday
Coca-Cola - Stock fell 0.82% on Tuesday
However, not all components are defensive stocks. The Dow Jones also has growth stocks within the index, which include the likes of NVIDIA and Microsoft. NVIDIA stocks were the best-performing stocks on Tuesday, increasing 5.63%. However, NVIDIA stocks only hold a weight of 1.78%.
Dow Jones - Upcoming Performance
The price movement of the Dow Jones is largely moving sideways on Wednesday after the decline on Tuesday. However, investors should note that some of the positive developments driving other indices higher also apply to the Dow Jones, even if its price has not reflected the same movement.
This includes the lower inflation figures from yesterday. The US Consumer Price Index (inflation rate) fell from 2.4% to 2.3%, the lowest since 2021, and core inflation figures remained at 2.8%. The lower inflation rate is likely to allow the Federal Reserve to opt for a cautious rate cut in July, even though this has not yet been signalled. Nonetheless, interest rate cuts and a better economic outlook are likely to positively influence all indices globally. Currently, the Dow Jones is 7.00% away from its all-time high.
Notably, analysts at Goldman Sachs Group Inc. yesterday reduced their projected likelihood of a US recession by year-end from 45% to 35%, while also raising their economic growth forecast from 0.5% to 1.0%.
Dow Jones - Daily Chart
The price of the Dow Jones is trading within a range during this morning’s Asian Session, but continues to remain above most trend lines. The VWAP is also slightly lower than the current price, giving a bullish bias. If the price increases above the $42,220.00, buy signals are likely to materialise due to the bullish breakout and crossover. However, if the range continues, the average price will be $42,174.18.
Key Takeaway Points:
* The Dow Jones does not follow the market trend and remains one of the only global indices falling in value. However, some analysts believe the index is partially oversold.
* Dow Jones fell 0.64% as pharma stocks dropped sharply after Trump called for major drug price cuts.
* UnitedHealth stock fell nearly 18% after missing earnings, weak guidance, and news of the CEO’s resignation.
* Defensive names like Coca-Cola and McDonald's declined as risk-on sentiment hurt safe-haven stocks.
* Lower inflation and reduced recession fears support a positive outlook, but the Dow still trails other indices.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.
Please note that times displayed based on local time zone and are from time of writing this report.
Click HERE to access the full HFM Economic calendar.
Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!
Click HERE to READ more Market news.
Michalis Efthymiou
HFMarkets
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
Is the Dow Jones Oversold Despite Pharmaceutical Stock Selloff?
Trading Leveraged products is Risky
All US indices rose in value on Tuesday except for the Dow Jones, which fell 0.64%. Very rarely, almost all global indices increase in value while one of the largest declines. What, then, is driving the Dow Jones’ decline despite the favourable market conditions?
Pharmaceutical Stocks Crash
One of the reasons why the Dow Jones was unable to mirror the bullish tone seen amongst the S&P 500 and NASDAQ was due to the Pharmaceutical sector. Approximately 14% of the weight within the Dow Jones is exposed to Pharmaceutical stocks, which significantly declined on Tuesday. The downward price movement within this sector was due to President Trump confirming that prescription drug prices must fall by almost 60%.
Here is the performance of pharmaceutical stocks in the Dow Jones on Tuesday:
* UnitedHealth Group stocks fell 17.79%
* Amgen Inc. stocks fell 1.57%
* Johnson & Johnson stocks fell 3.70%
* Merck & Co. stocks fell 4.72%
According to President Trump, the cost of prescription drugs in the US is sometimes up to 10 times higher than in other countries. This is despite the drug being ‘produced in the same laboratory’ using the same method and ingredients. Therefore, Trump is proposing that pharmaceutical companies lower the cost in the US and increase the cost elsewhere. However, this is triggering fear amongst investors and is prompting a selloff in the sector.
US Drug Prices Vs Other Countries
In addition to this, UnitedHealth Group stocks are under immense pressure due to the above and the company’s CEO has resigned. UnitedHealth Group in this quarter missed their earnings and revenue expectations for the first time since the 2008 banking crisis, and also gave poor guidance for the upcoming quarter.
Defensive Stocks Weaken Due To Improved Sentiment
Another reason for the Dow Jones’ weak price movement is its exposure to defensive stocks. Defensive stocks tend to do well during ‘risk-off’ conditions, while they may underperform in favourable stock market conditions. Defensive stocks within the Dow Jones include the following stocks:
McDonald’s - Stock fell 1.04% on Tuesday
Procter and Gamble - Stock fell 1.35% on Tuesday
Coca-Cola - Stock fell 0.82% on Tuesday
However, not all components are defensive stocks. The Dow Jones also has growth stocks within the index, which include the likes of NVIDIA and Microsoft. NVIDIA stocks were the best-performing stocks on Tuesday, increasing 5.63%. However, NVIDIA stocks only hold a weight of 1.78%.
Dow Jones - Upcoming Performance
The price movement of the Dow Jones is largely moving sideways on Wednesday after the decline on Tuesday. However, investors should note that some of the positive developments driving other indices higher also apply to the Dow Jones, even if its price has not reflected the same movement.
This includes the lower inflation figures from yesterday. The US Consumer Price Index (inflation rate) fell from 2.4% to 2.3%, the lowest since 2021, and core inflation figures remained at 2.8%. The lower inflation rate is likely to allow the Federal Reserve to opt for a cautious rate cut in July, even though this has not yet been signalled. Nonetheless, interest rate cuts and a better economic outlook are likely to positively influence all indices globally. Currently, the Dow Jones is 7.00% away from its all-time high.
Notably, analysts at Goldman Sachs Group Inc. yesterday reduced their projected likelihood of a US recession by year-end from 45% to 35%, while also raising their economic growth forecast from 0.5% to 1.0%.
Dow Jones - Daily Chart
The price of the Dow Jones is trading within a range during this morning’s Asian Session, but continues to remain above most trend lines. The VWAP is also slightly lower than the current price, giving a bullish bias. If the price increases above the $42,220.00, buy signals are likely to materialise due to the bullish breakout and crossover. However, if the range continues, the average price will be $42,174.18.
Key Takeaway Points:
* The Dow Jones does not follow the market trend and remains one of the only global indices falling in value. However, some analysts believe the index is partially oversold.
* Dow Jones fell 0.64% as pharma stocks dropped sharply after Trump called for major drug price cuts.
* UnitedHealth stock fell nearly 18% after missing earnings, weak guidance, and news of the CEO’s resignation.
* Defensive names like Coca-Cola and McDonald's declined as risk-on sentiment hurt safe-haven stocks.
* Lower inflation and reduced recession fears support a positive outlook, but the Dow still trails other indices.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.
Please note that times displayed based on local time zone and are from time of writing this report.
Click HERE to access the full HFM Economic calendar.
Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!
Click HERE to READ more Market news.
Michalis Efthymiou
HFMarkets
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
