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Dow Jones Industrial Average Wobbles Higher Despite Shaky Consumer Confidence

Posted on by Vaseline
Dow Jones Industrial Average Wobbles Higher Despite Shaky Consumer Confidence

  • The Dow Jones hits another record high, but bidders remain uncertain.
  • Consumer confidence surveys show that US consumers still fear higher inflation.
  • The Fed continues to deviate from policy rules, but markets are pricing in a growing likelihood of another double rate cut.

The Dow Jones Industrial Average (DJIA) hit another record bid on Tuesday, but price action remains tepid and intraday momentum struggles to break above the 42,000 level. The CB Consumer Confidence Index for September fell to the bottom of a familiar two-year range and Federal Reserve (Fed) Governor Michelle Bowman leaned into her disapproval of the Fed’s recent 50 bps rate cut.

Consumer confidence deteriorated across the board on Tuesday, with consumer expectations for 12-month inflation accelerating to 5.2%. Consumers also reported a general weakening in their outlook for their households’ six-month financial situation, and consumer assessments of general business conditions turned negative.

As explained by Dana Peterson, chief economist at the Conference Board, “Consumers’ assessments of current business conditions turned negative, while views of current labor market conditions softened further. Consumers also became more pessimistic about future labor market conditions and less positive about future business conditions and future income.”

Fed Board of Governors member Michelle Bowman made waves last week as the only person to dissent from the Fed’s near-unanimous decision to cut rates by an outrageous 50 bps. Fed Governor Bowman argued for a smaller cut of 25 bps, citing lingering concerns that the Fed may be acting prematurely before confirming that inflation will continue to ease toward its targeted 2% band.

Speaking to a banking group in Kentucky, Fed Governor Bowman explained that last week’s jumbo rate cut “may be interpreted as a premature declaration of victory on our price stability mandate. Accomplishing our mission of returning to low and stable inflation at our 2 percent target is necessary to promote a strong labor market and an economy that works for everyone over the longer term.”

Despite Fed Governor Bowman’s concerns, falling consumer confidence results have led to renewed bidding in rate markets for a follow-on jumbo cut in November. According to the CME’s FedWatch Tool, rate markets are pricing in a nearly 60% chance of a second 50 bps rate cut on November 7, and only a 40% chance of a more reasonable follow-on cut of 25 bps. Rate traders were pricing in roughly equal odds of either a 50 or 25 bps cut at the start of the week.

Dow Jones News

Despite an upward tilt on expectations for rate cuts, a move that would normally see stocks lurch to the bid side, the Dow Jones Industrial Average was roughly balanced on Tuesday, with about half of the index’s stocks trading in the red. Visa (V) is reportedly facing a potential antitrust lawsuit from the U.S. Department of Justice, sending shares of the payment card services company down 4.5% to $275 per share.

On the upside, Caterpillar (CAT) rose nearly 4% on Tuesday, jumping to a new record high of $388.44 per share as the construction and mining equipment maker extends an already impressive 35% year-over-year gain in its stock price. Despite single-digit declines in Caterpillar’s ​​reported sales, profit margins have been rising and the company’s recently announced $20 billion share buyback authorization is keeping investor confidence at bay.

Dow Jones Price Prediction

The Dow Jones hit another record high on Tuesday as investors continue to push the benchmark index higher, but intraday momentum remains generally tepid and bidders struggle to hold on to short-term gains. Prices continue to fall back into familiar territory just above the 42,000 mark.

The DJIA has risen 5.73% from its last swing low, to the 40,000 region. However, a skewed shift to the bullish side has left the price action with little technical traction. Charts may be primed for a pullback to the 50-day exponential moving average (EMA) near 40,770.

Dow Jones Daily Chart

Frequently Asked Questions about Dow Jones

The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is composed of the 30 most traded stocks in the United States. The index is price-weighted rather than capitalization-weighted. It is calculated by adding the prices of its 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 sufficiently representative, as it tracks only 30 conglomerates, unlike broader indices such as the S&P 500.

Many different factors drive the Dow Jones Industrial Average (DJIA). The overall performance of its component companies, as revealed in quarterly earnings reports, is the most important. U.S. and global macroeconomic data also contribute, as they influence investor sentiment. The level of interest rates set by the Federal Reserve (Fed) also affects the DJIA, as it affects the cost of credit, which many companies rely heavily on. Therefore, inflation can be a major driver, as can other metrics that influence the Fed’s 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 criterion. The theory uses elements of peak and trough analysis. Dow’s theory assumes three phases of trends: accumulation, when smart money starts buying or selling; public participation, when the general public joins in; and distribution, when the smart money leaves.

There are several ways to trade the DJIA. One is through the use of ETFs, which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 participating companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts allow traders to speculate on the future value of the index, while options offer the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds allow investors to buy a share of a diversified portfolio of DJIA stocks, thereby gaining exposure to the overall index.

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