The false U.S. stock market: the NASDAQ hitting new highs, the real U.S. stock market: the Dow Jones Industrial Average experiencing its longest consecutive decline since 1978?

Is the soaring U.S. stock market quietly brewing risks behind the scenes?

Recently, the U.S. stock market has exhibited some unprecedented trends. First, the blue-chip index, the Dow Jones Industrial Average, has fallen for nine consecutive trading days, marking the longest losing streak since 1978, with a cumulative decline of about 3.5%.

Secondly, the number of declining stocks in the S&P 500 has exceeded that of advancing stocks for 12 consecutive days, the longest continuous data recorded since October 1996 according to Bloomberg, and also the second longest decline period in 100 years. The longest consecutive decline since the 1920s was 14 days in 1978.

It is worth mentioning that the U.S. stock market is experiencing a "tale of two cities," as the aforementioned declines coincide with new highs for the S&P 500 and NASDAQ. The NASDAQ Composite Index just set a new all-time high this Monday, and the S&P 500 Index is only about 0.27% away from its historical peak.

What is causing this divergent trend? Does it signal that greater risks are brewing?

Market Shifts to Mag7

Behind this divergent trend, the market is steadily shifting towards the "Magnificent Seven" (Mag7) of U.S. stocks.

Deutsche Bank analyst Jim Reid pointed out in a recent report that this is because the Mag7 set a new all-time high last night, continuing its upward momentum for 9 out of the past 12 days, and has seen a year-to-date increase of over 76%.

However, Deutsche Bank's 2025 investor survey yielded a contradictory conclusion, with 33% expecting the Mag7 to decline in 2025, and believing that the likelihood of the index dropping by half in the next year is nearly twice as high as the likelihood of it doubling. The average expected return is +6.8%, but this average conceals a fairly wide range of outcomes.

Deutsche Bank stated:

This historic concentration could become problematic for another reason: the U.S. stock market is in a super artificial intelligence bubble or an epic market depression, with investors continuously flocking to a few stocks, inevitably leading to a catastrophic outbreak of accumulated market fragility. This is attributed to investors rushing into limited momentum trading and then facing a scarcity of trading liquidity when exiting (when liquidity is most needed). Over the past two weeks, this crowding phenomenon has accelerated to higher levels!

Since the beginning of 2022, the Mag7 has nearly doubled, but 2022 itself saw a nearly halving. Since the end of 2022, it has almost quadrupled. Deutsche Bank concluded that perhaps the outlook for the U.S. is much higher than the overwhelmingly consensus view for the future. In any case, if the Mag7 index can continue to maintain strong momentum, the exceptionalism of the U.S. will persist, driving American animal spirits and economic growth. However, if the Mag7 encounters obstacles, the soaring consensus in the U.S. will face pressure

Brewing Greater Risks?

In addition, UnitedHealth Group is one of the important reasons for the recent decline in the Dow. This insurance giant has dropped nearly 21% since the shooting incident, with the sell-off starting after the news of CEO Brian Thompson's tragic death. On Monday, UnitedHealth's stock price fell again, influenced by Trump's vow to "eliminate" intermediaries in the healthcare industry.

Although UnitedHealth Group is the largest "anchor" in the Dow, the decline is widespread, with more than two-thirds of the stocks in the Dow Jones Industrial Average falling during this period.

Keith Lerner, Co-Chief Investment Officer and Chief Market Strategist at Truist Advisory Services, stated that the way the Dow is falling is somewhat strange. Funds continue to flow into technology stocks. This is the dominant theme in this market—artificial intelligence and technology. After the election, investors are only focusing on the positive aspects of Trump's policies. Next year, they will have to pay attention to both the good and the bad, including concerns about Trump's threats to raise tariff rates and mass deportations.

The Chief Market Strategist at Ameriprise does not believe that the recent consecutive declines in the Dow Jones Industrial Average necessarily indicate future problems. The recent drop represents some profit-taking after significant gains in recent weeks. Expectations regarding the risks and opportunities brought by Trump's new government taking office next year have also been moderately adjusted, including whether the Trump 2.0 policy agenda can stimulate stock price increases