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The stock market could be facing possible instability due to a significant divergence between the Dow Jones Industrial Average and the benchmark S&P 500 index. Specifically, both indices have moved in opposite directions 50 times in the past 200 trading days, a historic divergence that hints at trouble ahead, according to data provided by financial market commentary platform The Kobeissi Letter in an X post on February 16. Dow Jones Industrial Average and S&P 500 index 200-day movement. Source: Dow Jones According to the platform, this disconnect has never been seen before, not even during past financial crises such as the 1994 bond market meltdown or the 2000 Dot-com bubble. “The Dow Jones Industrial Average and S&P 500 have moved in opposite directions in 50 out of the last 200 days. Such a large divergence has never happened before,” the platform noted.  Historically, this figure fluctuated between 10 and 30 instances per period, with spikes during times of market stress. To this end, The Kobeissi Letter suggested that the data indicates something unusual may be happening beneath the surface of the stock market. Driver of divergence between the Dow and S&P 500 One major driver of this divergence is the dominance of large-cap technology stocks, which have pushed the S&P 500 to new highs while leaving the Dow behind. Nearly a third of the S&P 500 is weighted toward tech giants like the ‘Magnificent Seven,’ which have surged thanks to their exposure to the booming artificial intelligence (AI). On the other hand, the Dow, with far less tech exposure, is less sensitive to AI, cloud computing, and semiconductor booms. This has led to the Dow trailing the S&P 500 by 17 percentage points over the past two years. Such a sustained divergence is rare and often signals major market shifts.…

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Filed under: News - @ February 16, 2025 8:20 pm