Late last year, an old investing theory with roots in the late 19th century confirmed a bullish 2026 outlook for stocks. Now it may instead signal a possible correction on the horizon. In the fourth quarter of 2025, the Dow Theory pointed to an uptrend in stocks in the new year, as both the Dow Jones Industrial Average and Dow Jones Transportation Average broke out simultaneously. The Dow Theory argues that a move higher in the industrials needs to be confirmed by a similar advance in the transports in order to be valid. In 2026, both indexes later advanced to new highs in the second quarter of the year. Recently, however, that confirmation hasn’t held up. The 30-stock Dow industrial average has risen 3% in the last three months, hitting fresh highs into August. But the 20-stock Dow Jones Transportation Average has fallen nearly 8% in the same time, failing to score fresh highs alongside the industrials. With this divergence between the two Dow average, Bank of America’s Paul Ciana is now less optimistic on the outlook for stocks, saying that the broad confirmation that supported the market in the first half of the year no longer applies. “This loss of confirmation removes the bullish Dow Theory condition that characterized the first half of 2026,” the technical analyst wrote in a note Wednesday. “While divergence does not confirm a primary bear market, it represents a cautionary development that increases the risk of a cyclical correction and warrants a more defensive stance toward the broader index’s advance.” Ciana also noted that trading volume for stocks in the Dow Transports — such as Norfolk Southern , FedEx and Union Pacific — has declined since May. This comes as the price of diesel fuel – used to power railroads and the trucking industry – has soared to record highs due to the crippling of refinery production as a result of the wars in Ukraine and Iran. — CNBC’s Deena Zaidi contributed to this report.
A faltering Dow Theory could spell more bad news for stocks
Sep 10, 2026
