Dow Jones Industrial Average tepid as investors await Fed

FXStreetDec 16, 2024 6:16 PM

The Dow Jones is trading sluggish on Monday, stuck near 43,800.
Markets await what is broadly anticipated to be the Fed’s last rate cut of 2024.
Increases in telecoms and retail stocks have offset declines in key tech and health stocks.

The Dow Jones Industrial Average (DJIA) continues to churn on the low end of recent chart action, with the major equity index bogged down near 43,800. Investors are gearing up for the Federal Reserve’s (Fed) last policy meeting of the year, with the US central bank widely expected to deliver one last quarter-point rate cut before investors wrap it up for the holiday season.

US Purchasing Managers Index (PMI) activity figures came in mixed on Monday, with the US Services component accelerating to its highest print in just over three years while the Manufacturing component eased back further into contraction territory. December’s US Services PMI confidence survey results showed aggregated expectations for business activity have risen to 58.5, the highest level since November of 2021. Median market forecasts had expected a downside print of 55.7 versus November’s 56.1. On the Manufacturing PMI side, business expectations declined more than expected, falling to 48.3 compared to the anticipated 49.4 and last month’s 49.7.

It’s a full docket this week with high-weight US data dropping on markets every day through to the weekend, with US Retail Sales on Tuesday, US Gross Domestic Product (GDP) figures on Thursday, and US Personal Consumption Expenditure Price Index (PCE) inflation on Friday. However, the key event this week is the Fed’s last rate call of 2024. Fed officials head behind closed doors to deliberate during a two-day meeting on Tuesday, with the Fed’s final decision rendered on Wednesday. This week’s Fed meeting carries additional weight, as the US central bank will also be updating its ‘dot plot’ of interest rate expectations. Traders widely expect the Fed to reduce its policy rate by 25 bps to 4.5%.

Dow Jones news

The Dow Jones is teetering near the midpoint on Monday, with winners and losers cut roughly down the middle. Unitedhealth Group (UNH) is shedding weight, falling 3.7% and testing $501 per share, while Honeywell International (HON) is rising after news the company may be streamlining its operations and splitting off its aerospace division into a separate company. HON is up around 3.6%, trading near $236 per share.

Dow Jones price forecast

The Dow Jones is continuing its slow bleed down the charts on Monday, kicking off a new trading week holding on the low end. The Dow has posted declines for the last seven consecutive sessions, and further weakness is likely as price action falls back to the 50-day Exponential Moving Average (EMA) near 43,500.

Despite near-term softness, the Dow Jones still holds comfortably on the high end of long-term momentum. The Dow is still trading above the last swing low into the 43,000 handle, and has closed higher for all but two of the last 12 straight trading months.

Dow Jones 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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.