Dow Jones Industrial Average bolstered by consumer sentiment despite earnings declines
- The Dow Jones is struggling to stay in the green as it wraps up a wobbly trading week.
- UoM Consumer Sentiment Index figures showed US consumers are recovering from April’s tariff tilt.
- Key earnings misses on Friday are dragging the major equity index down for the day.
The Dow Jones Industrial Average (DJIA) wobbled on Friday, testing fresh weekly highs on consumer sentiment and inflation expectations data. However, the Dow backslid after earnings misses in key overweight companies dragged the index sharply lower to round out the trading week.
The University of Michigan’s (UoM) July Consumer Sentiment Index showed another recovery in aggregated survey responses, with the index climbing to 61.8 from 60.7. 1- and 5-year Consumer Inflation Expectations also eased on Friday, with the one-year lookahead slipping to 4.4% from 5% and the 5-year inflation outlook falling to 3.6% from 4%.
Key earnings beat the street, but shares still fall
Q2 earnings week wrapped up on Friday, with downside in key heavyweight companies dragging the Dow lower. Both 3M (MMM) and American Express (AXP) fell by more than 3% post-earnings despite beating headline forecasts. 3M cleared earnings and revenue expectations, but a 2.2B quarterly expenditure on legal fees, and investors are concerned that more court costs could be on the horizon.
American Express also beat headline growth and profit expectations, but investor concerns are growing that the credit company will face firm headwinds moving forward. FX market volatility and exchange rates, rapidly evolving digital payment alternatives, and trade frictions from tariffs all threaten American Express’s bottom line.
Dow Jones price forecast
Friday’s downside momentum has put the Dow Jones within touch range of the trading week’s opening bids, with the major equity index trading within 0.1% of Monday’s initial prices. The Dow is struggling maintain a foothold at the 44,500 region, and lack of sustained bullish momentum could see the DJIA extend into the bearish side as technical oscillators continue to ease back into the midrange.
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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