Dow Jones Industrial Average struggles to regain its footing after Fed rate cut hopes get dashed
- The Dow Jones sank on Wednesday, forced lower by a still-cautious Federal Reserve.
- The Fed’s rate call is locked in as a hold, but market bets of a September rate cut declined sharply.
- Market tensions continue to coil ahead of the August 1 tariff deadline.
The Dow Jones Industrial Average (DJIA) fell on Wednesday, skidding back below 44,300 after Federal Reserve (Fed) Chair Jerome Powell remains resolute in the Federal Open Market Committee's (FOMC) decision to continue waiting for better US data and a clearer picture of inflationary impacts from tariffs before making any final decisions on cutting interest rates.
The major equity index started a rebound following a sharp adjustment to broad-market rate cut expectations, but Wednesday went into the books as another down day for the Dow Jones as the index struggles to hold onto the 44,500 level.
Read more Fed news: Powell say we have made no decisions about September
The Fed held interest rates steady in the 4.25-4.5% range on Wednesday, as many had predicted. What caught traders by surprise was Fed Chair Powell's insistence on waiting for further data before the Fed will begin to discuss interest rates. US inflation has rebounded in recent months, and despite an overall healthy labor outlook, concerns have grown that the US hiring market may be set to slow sharply in the months ahead.
At the current cut, rate traders are now pricing in less than 50% odds of a rate cut in September, and the new goalpost has been shifted to nearly 90% odds of a quarter-point rate cut in October.
US Gross Domestic Product (GDP) growth came in stronger than expected, with the US economy growing 3.0% on an annualized basis through the second quarter, outpacing the 2.4% forecast. Investors remain fixed on the Fed, however, and equity markets remained largely unchanged post-GDP release.
Key “Magnificent Seven” earnings will be posted on Wednesday after the closing bell. Social media giant and aspiring tech giant Meta Platforms (META), alongside software monolith Microsoft (MSFT), will be posting their latest quarterly earnings reports.
Read more stock news: UPS stock drops back to covid lows as Bank of America cuts price target
What a difference 24 hours makes
On the trade and tariff front, the Trump administration has done an about-face within the span of a single day. On Tuesday, the Trump team proclaimed that the US is nearing a conclusion in trade talks with China and that a wave of successfully negotiated trade deals was earmarked for imminent announcement. On Wednesday, the tone has completely changed: US negotiators abruptly ended trade talks with China, with US President Donald Trump reaffirming his self-imposed deadline of August 1 for the restart of global reciprocal tariffs. Trump also announced a flat 25% tariff on all goods bound for the US from India. Trump also reiterated his intent to start a “penalty” tariff on any country that buys Russian Crude Oil products if Russia doesn’t solve its war in Ukraine within the next ten days.
Dow Jones five-minute chart
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.
Author
Joshua Gibson
FXStreet
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.
