Dow Jones Industrial Average soars on Middle East peace deal hopes
- The Dow Jones surged around 500 points on Tuesday, climbing above 35,000.
- Investors are banking on a continued easing of tensions in the Middle East.
- Fed policymakers remain leery of tariff-led inflation and unemployment pressures.
The Dow Jones Industrial Average (DJIA) rallied on Tuesday, with equity markets bolstered across the board as the Israel-US-Iran conflict looks set to continue cooling off. Crude Oil markets are receding, falling into two-week lows and further easing market fears. Despite the overall improvement in general investor sentiment, Federal Reserve (Fed) officials remain uneasy at the prospect of a tariff-led inflation uptick, especially around the Q2-Q3 midpoint.
Israel and Iran appear to be inching toward a ceasefire deal, albeit with some hiccups, sparking a bull run in equity markets. A shaky ceasefire deal, which was largely brokered by US President Donald Trump, helped to bolster market confidence that their bets of a cool-off in tensions would pay off. Reports of missile exchanges between Iran and Israel hours after the start of Trump’s phased ceasefire deal sparked a public chastising from President Trump aimed at both Israel and Iran, but markets continue to expect a walkback on tensions between the two Middle East countries.
Fed Chair Jerome Powell kicked off the first half of his two-day testimony before congressional and Senate financial committees on Tuesday. Fed head Powell reaffirmed the Fed’s determination to hold off on making any policy rate adjustments until they get a clearer sense of what kind of inflation impact tariffs could bring, with the Fed Chair specifically highlighting concerns of an uptick in inflation pressure heading through the summer months.
Rate traders still have their hopes pinned on a September rate cut, according to the CME’s FedWatch Tool. Odds of at least a quarter-point rate trim on September 17 are holding near 80%, with odds of a follow-up cut in October hovering around 60%.
Read more stock news: US stock markets to open higher as shaky ceasefire continues risk-on sentiment
Dow Jones price forecast
The Dow Jones Industrial Average’s Tuesday push has knocked intraday bids back above the 43,000 handle, and the DJIA is poised to close above the major psychological level for the first time since early March. The major equity index has fully recovered from its post-tariff announcement rout that kicked off in early April, and bullish momentum is poised to carry the Dow back into all-time highs above 45,000.
Dow Jones daily chart
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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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