Dow Jones Industrial Average pares gains, falls back below 46,000
- The Dow Jones recoiled on Friday after tapping record highs this week.
- Consumer sentiment indicators showed a steeper-than-expected decline.
- Next week’s upcoming Fed rate call will also include an SEP update.
The Dow Jones Industrial Average (DJIA) pared gains on Thursday, slipping back below 46,000 after chalking in record levels through the midweek sessions. University of Michigan (UoM) Consumer Sentiment Index figures for September declined much faster than forecasts expected, and long-term inflation expectations also rose.
The Federal Reserve (Fed) is broadly expected to trim interest rates on September 17 in the face of crumbling labor market data despite a near-term uptick in inflation. The Fed will also be delivering an updated Summary of Economic Projections (SEP) at next week’s interest rate decision, promising an information-dense rate call for investors to grapple with.
The Dow Jones shed four-tenths of one percent on Friday, testing 45,900 after closing above 46,000 for the first time ever on Thursday. Equities have leaned firmly into the bullish side in September despite the month historically involving poor performance for stock markets. Major indexes are broadly higher for the week, with the Dow Jones gaining over 500 points from Monday’s opening bids and ending the week up over 1.1%.
Consumer sentiment continues to sour in the face of tariff impacts
The UoM Consumer Sentiment Index contracted to 55.4 from the previous print of 58.2. The consumer outlook on durable goods improved, but all other index components declined, particularly among lower and middle-income consumers. Respondents broadly noted economic vulnerabilities in business conditions, labor markets and hiring, and inflation. Consumers expect both their incomes and purchasing power to decline moving forward, with over 60% of respondents offering unprompted statements about the Trump administration’s tariffs and their negative impacts on US consumers. According to UoM Surveys of Consumers Director Joanne Hsu,
“Trade policy remains highly salient to consumers… Still, sentiment remains above April and May 2025 readings, immediately after the initial announcement of reciprocal tariffs.”
US consumers remain apprehensive about inflation looking ahead, with 1-year inflation expectations holding steady at 4.8%. Despite the 5-year long-run inflation outlook rising for a second straight month to 3.9% in September, it still remains below the peak 4.4% reached in April following the tariff announcements.
The Fed is broadly expected to deliver an opening 25-basis-point interest rate cut next week when the Federal Open Market Committee (FOMC) convenes for its next rate decision to be announced on September 17. Despite inflation continuing to tease another comeback, the Fed is widely expected to step into a rate-cutting cycle in the face of steep declines and multiple sharp downward revisions to US labor and hiring data. The FOMC will also be delivering its latest SEP, and investors will be curious to see if Fed officials share the market’s expectations for three straight cuts through the end of the year.
Dow Jones daily chart
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
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