Dow Jones Industrial Average Recap: DJIA remains depressed after FOMC minutes
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UNLOCK OFFER- DJIA index remains depressed on Wednesday after the release of the FOMC minutes for June meeting.
- 35,500 remains the primary Dow target for bulls.
- US June jobs report is out on Friday with 225K as the consensus estimate.
The Dow Jones Industrial Average (DJIA) stays in the red on Wednesday after the release of the Federal Open Market Committee (FOMC) meeting minutes for the June meeting continued to paint a picture of an unfinished battle with inflationary forces.
Whilst all 18 board members of the FOMC agreed to pause hiking rates at the June meeting, all bar two said they expected interest rates would rise in the future to bring down presistent high inflation, to in line with the Federal Reserve's (Fed) target of 2% core inflation. The DJIA failed to react much to the release as the contents of the minutes more or less fell in line with current market expectations, and it continues trading around the 34,300 mark.
The focus now turns to the next event on the macroeconomic calendar, Friday's release of the June Nonfarm Payrolls report, with 225K extra jobs as the economists' estimate.
The market appears to be trending lower due to poor services sector data out of China. The Caixin Services Purchasing Managers Index for June gave a reading early Wednesday of 53.9. While that number is above 50 and thus shows an expansion, it was much lower than the previous month’s reading of 57.1. This is affecting the US market as it is viewed as another sign that the Chinese economy is failing to work its way out of last year’s pandemic-induced recession.
AllianceBernstein argues in a client note on Wednesday that the market will likely find it difficult to find a definite direction in the third quarter. “From a market perspective, as we have observed in past quarters, a sustained period of below-trend growth argues for caution but not panic. Absent a hard landing, markets may struggle to sustain momentum in either direction.”
Dow Jones news: FOMC minutes on Wednesday could direct Dow price action
The minutes for the Federal Open Market Committee meeting – in which Federal Reserve governors chose to keep US interest rates unchanged on June 14 – will be released at 18:00 GMT on Wednesday. These notes will allow outsiders to parse the discussion between members about how they arrived at the decision in mid-June to keep the fed funds rate stationed in a range between 5% to 5.25%. That was the first meeting that rates remained stable since the central bank began raising interest rates in the prior ten consecutive meetings.
Economist Derek Tang from LH Meyer expects the minutes to backstop the impression that the Fed will raise the fed funds rate at its July 26 meeting.
“A July hike is not a given but pretty close, since it gets harder for [the Fed] to claim the hiking cycle is still alive if they don’t hike two meetings in a row,” Tang told Bloomberg.
The much-followed CME FedWatch Tool currently gives an 87% chance that the central bank raises the fed funds rate by 25 basis points later this month. That expectation should have a sobering effect on equities due to the ability of higher interest rates to slow economic growth by raising financing costs.
Dow Jones news: Nonfarm payrolls on tap for Friday
The June Nonfarm payrolls report is the largest focus on the economic indicator schedule this week for the US market. Analyst consensus expects a net 225,000 new jobs in June – a fairly large drop from May’s 339,000-job upside surprise. Consensus for May had initially been 190,000.
With US Q1 annualized GDP growth being revised up from 1.3% to 2% late last week, another beat on the June jobs report seems somewhat likely. ADP will give the market a hint on Thursday ahead of Friday’s Nonfarm Payrolls release. The ADP Employment Change report for June has been revised higher this week. The consensus forecast was recently at 180,000, but it has since risen to 228,000. In May, ADP reported a positive gain of 278,000 jobs.
The Institute for Supply Management (ISM) will also release its US Services PMI for June on Thursday. May’s 50.3 reading is expected to trend up to 51 for June.
Thursday will also see the release of Initial Jobless Claims for the US in the week ending June 30. This figure is forecast at 245,000, up from the previous week’s 239,000.
What they said about the market - Alex King
Alex King, an investment strategist at Cestrian Capital Research, expects the Dow to advance this week with some rotation toward legacy names in the index. He spoke about his market stance with Seeking Alpha at the end of June.
“There are a great many single-stock names in the financial and other sectors that are forming accumulation patterns at the lows just as did tech stocks in Q3/Q4 2022 – we anticipate Big Money pushing these stocks into their markup zones in the next 2-3 quarters, dragging up the indices further as it happens.”
Dow Jones forecast
The Dow Jones index begins Wednesday inside a resistance zone stretching from 34,200 to 34,600. This region has pushed prices lower at least seven times in the past seven months.
A break of 34,600 will allow bulls to move on to the next target at 35,500. That level is the top of a resistance range extending from 35,350 that blocked upward price action in March and April of 2022. The Moving Average Convergence Divergence (MACD) indicator shows a slight bullish crossover that may predict an imminent move higher.
In the meantime, medium to longer-term support exists from 32,600 to 32,800 and from 31,430 to 31,805.
DJIA daily chart
Dow Jones FAQs
What is the Dow Jones?
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.
What factors impact the Dow Jones Industrial Average?
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.
What is Dow Theory?
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.
How can I trade the DJIA?
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.
- DJIA index remains depressed on Wednesday after the release of the FOMC minutes for June meeting.
- 35,500 remains the primary Dow target for bulls.
- US June jobs report is out on Friday with 225K as the consensus estimate.
The Dow Jones Industrial Average (DJIA) stays in the red on Wednesday after the release of the Federal Open Market Committee (FOMC) meeting minutes for the June meeting continued to paint a picture of an unfinished battle with inflationary forces.
Whilst all 18 board members of the FOMC agreed to pause hiking rates at the June meeting, all bar two said they expected interest rates would rise in the future to bring down presistent high inflation, to in line with the Federal Reserve's (Fed) target of 2% core inflation. The DJIA failed to react much to the release as the contents of the minutes more or less fell in line with current market expectations, and it continues trading around the 34,300 mark.
The focus now turns to the next event on the macroeconomic calendar, Friday's release of the June Nonfarm Payrolls report, with 225K extra jobs as the economists' estimate.
The market appears to be trending lower due to poor services sector data out of China. The Caixin Services Purchasing Managers Index for June gave a reading early Wednesday of 53.9. While that number is above 50 and thus shows an expansion, it was much lower than the previous month’s reading of 57.1. This is affecting the US market as it is viewed as another sign that the Chinese economy is failing to work its way out of last year’s pandemic-induced recession.
AllianceBernstein argues in a client note on Wednesday that the market will likely find it difficult to find a definite direction in the third quarter. “From a market perspective, as we have observed in past quarters, a sustained period of below-trend growth argues for caution but not panic. Absent a hard landing, markets may struggle to sustain momentum in either direction.”
Dow Jones news: FOMC minutes on Wednesday could direct Dow price action
The minutes for the Federal Open Market Committee meeting – in which Federal Reserve governors chose to keep US interest rates unchanged on June 14 – will be released at 18:00 GMT on Wednesday. These notes will allow outsiders to parse the discussion between members about how they arrived at the decision in mid-June to keep the fed funds rate stationed in a range between 5% to 5.25%. That was the first meeting that rates remained stable since the central bank began raising interest rates in the prior ten consecutive meetings.
Economist Derek Tang from LH Meyer expects the minutes to backstop the impression that the Fed will raise the fed funds rate at its July 26 meeting.
“A July hike is not a given but pretty close, since it gets harder for [the Fed] to claim the hiking cycle is still alive if they don’t hike two meetings in a row,” Tang told Bloomberg.
The much-followed CME FedWatch Tool currently gives an 87% chance that the central bank raises the fed funds rate by 25 basis points later this month. That expectation should have a sobering effect on equities due to the ability of higher interest rates to slow economic growth by raising financing costs.
Dow Jones news: Nonfarm payrolls on tap for Friday
The June Nonfarm payrolls report is the largest focus on the economic indicator schedule this week for the US market. Analyst consensus expects a net 225,000 new jobs in June – a fairly large drop from May’s 339,000-job upside surprise. Consensus for May had initially been 190,000.
With US Q1 annualized GDP growth being revised up from 1.3% to 2% late last week, another beat on the June jobs report seems somewhat likely. ADP will give the market a hint on Thursday ahead of Friday’s Nonfarm Payrolls release. The ADP Employment Change report for June has been revised higher this week. The consensus forecast was recently at 180,000, but it has since risen to 228,000. In May, ADP reported a positive gain of 278,000 jobs.
The Institute for Supply Management (ISM) will also release its US Services PMI for June on Thursday. May’s 50.3 reading is expected to trend up to 51 for June.
Thursday will also see the release of Initial Jobless Claims for the US in the week ending June 30. This figure is forecast at 245,000, up from the previous week’s 239,000.
What they said about the market - Alex King
Alex King, an investment strategist at Cestrian Capital Research, expects the Dow to advance this week with some rotation toward legacy names in the index. He spoke about his market stance with Seeking Alpha at the end of June.
“There are a great many single-stock names in the financial and other sectors that are forming accumulation patterns at the lows just as did tech stocks in Q3/Q4 2022 – we anticipate Big Money pushing these stocks into their markup zones in the next 2-3 quarters, dragging up the indices further as it happens.”
Dow Jones forecast
The Dow Jones index begins Wednesday inside a resistance zone stretching from 34,200 to 34,600. This region has pushed prices lower at least seven times in the past seven months.
A break of 34,600 will allow bulls to move on to the next target at 35,500. That level is the top of a resistance range extending from 35,350 that blocked upward price action in March and April of 2022. The Moving Average Convergence Divergence (MACD) indicator shows a slight bullish crossover that may predict an imminent move higher.
In the meantime, medium to longer-term support exists from 32,600 to 32,800 and from 31,430 to 31,805.
DJIA daily chart
Dow Jones FAQs
What is the Dow Jones?
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.
What factors impact the Dow Jones Industrial Average?
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.
What is Dow Theory?
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.
How can I trade the DJIA?
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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