A faltering Dow Theory could spell more bad news for stocks
A late 19th century investment theory that confirmed a bullish 2026 outlook for equities may now signal a possible correction on the horizon.
TL;DR
- Dow Theory, an investing theory from the late 19th century, previously indicated a bullish outlook for stocks in 2026.
- A key principle of Dow Theory is that advances in the industrial average must be confirmed by similar advances in the transportation average.
- Recently, the Dow Jones Industrial Average has risen while the Dow Jones Transportation Average has fallen, creating a divergence.
- This loss of confirmation suggests the bullish conditions that supported the market in the first half of 2026 no longer apply.
- The divergence is a cautionary development that increases the risk of a cyclical correction and warrants a more defensive market stance.
- Trading volume for transportation stocks has declined since May.
- Soaring diesel fuel prices, influenced by refinery production issues due to wars in Ukraine and Iran, are impacting the trucking and railroad industries.