|

Dow Jones Industrial Average retreats after Fed’s Powell reconsiders third rate cut

  • The Dow dipped on Wednesday following the Fed’s latest rate cut.
  • Fed Chair Powell threw cold water on expectations for a third straight rate trim.
  • Citing a lack of official data, Powell leaned into the cautious side.

The Dow Jones Industrial Average (DJIA) shuddered on Wednesday, tapping fresh intraday all-time highs above 48,000 before knocking lower after Federal Reserve (Fed) Chair Jerome Powell warned that the latest Fed interest rate cut may be the last rate move for a little while.

Fed's Powell: We're 150 basis points closer to neutral

The Fed delivered a follow-up 25 basis point interest rate cut on Wednesday, as markets had broadly expected. The Fed also signaled a further reduction in Quantitative Easing (QE) balance sheet items, which was also expected by markets. The true plot twist came when Fed Chair Jerome Powell, citing a lack of official employment and labor data amid the ongoing US government shutdown, suggested that the Fed may be forced into another open-ended wait-and-see cycle as policymakers struggle to accurately forecast economic outcomes.

Fed Chair Powell dances between inflation and employment concerns

Fed Chair Powell went on to note that there is still some room to move to the upside on inflation thanks to tariff price pressures, though pulled up just short on flashing any meaningful warnings on the labor market, noting that the Federal Open Market Committee (FOMC) doesn’t “see weakness in the job market accelerating.”

Rate market expectations for another interest rate cut in December tumbled from above 90% pre-Fed rate announcement all the way down to 50% post-FOMC press conference, with rate traders now pricing in 91% odds that a third rate trim will come in January, with a cautionary 70% betting ratio on March.

Dow Jones 5-minute 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.

Author

Joshua Gibson

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

More from Joshua Gibson
Share:

Editor's Picks

GBP/USD breaches below 1.3500, two-day lows

GBP/USD faces renewed selling pressure, eroding the earlier advance and slipping back to the sub-1.3500 region on Wednesday. Cable’s loss of upside momentum follows the resurgence of the demand for the Greenback amid steady geopolitical tensions. Looking ahead, the British Pound is expected to remain under scrutiny in light of the release of UK GDP data on Thursday.

EUR/USD weakens to multi-day lows near 1.1520

EUR/USD makes a U-turn and trades with decent losses near 1.1520 following the closing bell on Wall Street on Wednesday. The US Dollar’s recovery post-US CPI data keeps the risk complex under pressure in a context where geopolitics takes centre stage once again. Moving forward, attention remains on US inflation with the release of Producer Prices alongside weekly Claims.

Gold holds comfortably above $4,400, June 5 high amid receding Fed hike bets

Gold climbs back to its highest level since June 5, touched following the release of the US CPI report on Wednesday, and looks to build on an over one-week-old uptrend. Receding Fed-hike bets continue to drive flows towards the non-yielding bullion amid subdued US Dollar price action. However, the US-Iran standoff could limit any meaningful USD decline and cap the precious metal as traders now look to the US PPI for a fresh impetus.

Bitcoin shows early signs of bottom despite lingering market stress
Bitcoin (BTC) is showing several signs of a potential market bottom as multiple indicators show improving market conditions, according to CryptoQuant analysts. CryptoQuant data revealed that Bitcoin has produced a second early bull signal, a pattern that has historically appeared closer to market bottoms.
Gold has priced a Fed pause. The hike is still coming
July inflation landed exactly where the consensus had it, on all four lines of the release, and Gold responded by adding around 1% and holding fast near $4,400/ounce, trading at its highest since early June. A print that surprises nobody is not supposed to move a metal that far.
Why is Crude Oil priced for a reopening the ships haven't made?
Fourteen vessels crossed the Strait of Hormuz on Tuesday. Before the war, the count ran near 120 a day. In the sessions since the waterway was publicly declared open, Brent has drifted back to $87 and West Texas Intermediate (WTI) to $81, both a little lower again on Wednesday, with daily momentum on each unwound from the top of its range in late July to the low twenties now.