INSIGHTS

On September 22, 2025

AAM Viewpoints — Digital Age Dismantling Wall Street’s Analog Adages

The digital age has shattered some traditional adages on Wall Street. One in particular is the “Dow Theory.” Simply stated, the Dow Theory measures the relative behavior of the Dow Jones Transportation Average versus the Dow Jones Industrial Average (DJIA). Disciples of the Dow Theory believe that the transportation of goods and commodities is a precursor to economic activity that will eventually be reflected in the performance of the DJIA. Therefore, the theory contends that for a bull market to be “legitimate” it initially must be led by transportation stocks. But, to understand just how analog this concept is, it is important to consider that the Dow Theory was created when the Dow Jones Transportation Index was called the “Dow Jones Rails” — a time when the bulk of products, such as coal and industrial equipment, were carried by the railroads. I mention this, not solely because of the inconsequential rendering of this long-standing stock market theory, but because placing too much emphasis on any one set of technical or fundamental theories can lead to an erroneous interpretation of current and future trends.

In reality, there does remain something old-fashioned that we believe is effective in forecasting market conditions: the study of supply and demand. In my opinion, an effective way to measure this is through the study of price patterns, net money flow trends (a replacement to tickertape reading), and relative strength. Combined, these tools can aid in grading the merits of the general market as well as individual stocks. It may also help to filter out extraneous factors that are not germane to the market’s outlook. And in an era of the 24-hour news cycle cluttered with events of every imaginable kind, these basic technical tools may trump adages, traditions and even sophisticated theories based on seasonal or sentiment studies.

Let me also address the increasing calls of a technology bubble. The term conjures up memories of March 2000, a dramatic and historic stock market moment — the bursting tech bubble. Indeed, numerous technology stocks, especially those substantially attached to the Artificial Intelligence (AI) theme, are overbought. A number of leading technology stocks are extended by 15%, or greater, above their widely watched short-term moving average support levels. While this may argue for a near-term pullback in the sector, it does not necessarily qualify as a bubble. Many leading technology companies have posted both better-than-anticipated earnings results and positive outlooks. My observation is that the longer-term uptrends in most of these stocks are firmly intact and most are likely to remain leaders for the long haul. Given my recent ultimate target revision for the DJIA (from 50,000 to 60,000), I believe the best course of action is to hold positions in an array of leadership stocks — not just technology — for the long term.

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Opinions in this piece are those of Peroni Portfolio Advisors and are not necessarily that of AAM.