Dow Jones Industrial Average cautiously higher on Wednesday despite tepid risk appetite

Source Fxstreet
May 8, 2024 17:57
  • Dow Jones looks for gains as other indexes recede.
  • A quiet, data-thin Wednesday leaves investors looking ahead.
  • Fed outlook remains key focal point for markets.

The Dow Jones Industrial Average (DJIA) recovered from an early dip during the American trading session, climbing to an intraday high near 39,000.00 as the major equity index breaks away from the crowd. The other US indexes are down during the midweek market session with a thin economic calendar delivering little of note.

Fedspeak continues to lead investors around by the nose as market participants continue to hope for an accelerated pace of Federal Reserve (Fed) rate cuts. Multiple officials from the central bank have delivered moderating messages this week, with policymakers cautioning that rate cuts are beholden to continued progress on inflation and a loosening in the US’ tight labor market.

Read more:
Fed Collins: The job market is coming to a better balance
Fed Kashkari: Fed will hold rates where they are if we need to

Inflation continues to plague the Fed’s outlook on rate cuts, with rate cut hopes further vexed by a still-tight labor market that continues to add jobs at a healthy pace and an unemployment rate well below the structural level. Fedspeak has been increasingly dominating market flows as central planners grapple with financial markets that have steadily overextended hopes of rate cuts. 

At current cut, the CME’s FedWatch Tool shows rate markets are pricing in a first quarter-point cut in September, with rate traders seeing 71% odds of two rate cuts by the end of 2024.

Dow Jones news

Around a third of the 30 securities comprising the Dow Jones are lower on Wednesday. Intel Corp. (INTC) backslid around 3% on the day after the tech company revised its forward guidance after The US Department of Commerce revoked an export license for China-based Huawei. Intel now expects first-quarter earnings to fall below $13 billion.

Cisco Systems Inc. (CSCO) rose 1.6% on the day, gaining three-quarters of a point to trade at $48.03 per share. Cisco is closely followed by Amgen Inc. (AMGN) which gained 1.22% and traded near $304.00 per share as the company gets closer to bringing their latest cancer-fighting drug to market.

Dow Jones technical outlook

The Dow Jones Industrial Average is taking a run at the 39,000.00 handle on Wednesday as equities look for a bullish foothold amidst thin market volumes. The Dow Jones is up around a third of a percent on the day, and bidders are looking to build out a floor after breaking through near-term technical resistance near 38,970.00.

The Dow Jones is on pace for a fifth consecutive gainer, climbing from the last swing low into 37,600.00. The index is trading well above the 200-day Exponential Moving Average (EMA) at 36,863.68. Despite gains, the Dow Jones is still trading on the low side of the major equity index’s recent all-time highs just shy of the 40,000.00 price point.

DJIA five-minute chart

DJIA 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.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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