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- The Dow Jones Index rebounded from lows near 38,000.00 after a sharp decline.
- Market sentiment is recovering as hopes of interest rate cuts rise again.
- US PCE inflation is cooling faster than expected.
The Dow Jones Industrial Average (DJIA) rebounded nearly 580 points on Friday as investor sentiment rose following US personal consumption expenditures (PCE) data. Price index Inflation fell faster than expected. Price markets are once again pricing in better-than-even odds for a September interest rate cut by the Federal Reserve. The Dow Jones is also being boosted by a strong rebound in Salesforces Inc. (CRM) after the management company missed revenue expectations for the first time since 2006, leading to a sharp 20%+ decline in the stock.
The US Personal Consumption Expenditures Price Index fell to 0.2% m/m in April, below the flat 0.3% forecast. US personal spending also fell more than expected in April, falling to just 0.2% m/m versus expectations of 0.3%, and further down from the previous month’s revised reading of 0.7%.
With inflation pressures showing further signs of slowing, investors are once again focusing on hopes of a September interest rate cut by the Federal Open Market Committee (FOMC). According to the Chicago Mercantile Exchange’s FedWatch tool, rate markets expect only a 48% chance of no rate change in September.
Dow Jones News
The Dow Jones was broadly higher on Friday, with all but two of the index’s constituent stocks in the green for the day. Amazon (AMZN) fell 1.6% to $176.44 per share despite announcing progress on Amazon’s planned drone delivery services. Investors remain skeptical that the delivery company will be able to see returns on its automated delivery plans.
(CRM) rose 7.54% on Friday, trading at $234.44 per share as the stock slowly recovers from the harsh sell-off it experienced earlier in the week. Customer relationship management (CRM) fell more than -20% this week after the management software company missed earnings expectations by $40 million. CRM reported first-quarter revenue of $9.133 billion, an increase of 11% year-over-year, while the average analyst estimates expected revenue of $9.145 billion. CRM also issued lower forward guidance for growth and profits as the long-standing company struggles to find new customer markets to break into.
Dow Jones Technical Forecast
The Dow Jones is rebounding from sharp near-term declines, reaching 38,380.00 after hitting a new May low near 38,000.00 this week. The major stock index has fallen on all but three of 10 consecutive trading days, and the Dow Jones Industrial Average is still down -4.2% from its record highs of over 40,000.00 on May 20.
The Dow Jones is still trading north of its 200-day EMA at 37,220.72, but sharp near-term declines have left the index well below its all-time highs and facing a short squeeze.
Five-minute chart of the Dow Jones index
Dow Jones daily chart
Dow Jones FAQs
The Dow Jones Industrial Average is one of the oldest stock market indexes in the world, consisting of the 30 most actively traded stocks in the United States. The index is price-weighted and not market capitalization-weighted. It is calculated by summing the component stock prices and dividing them by a factor that currently amounts to 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years, it was criticized for not being broadly representative enough because it tracks only 30 conglomerates, unlike broader indices such as the S&P 500.
There are many different factors that drive the Dow Jones Industrial Average (DJIA). The overall performance of the constituent companies disclosed in the company’s quarterly earnings reports is the headline performance. US and global macroeconomic data also contribute to its impact on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also affects the Dow Jones Industrial Average because it affects the cost of credit, on which many companies rely heavily. Therefore, inflation can be a key driver along with other metrics that influence the Fed’s decisions.
Dow Theory is a method of determining the fundamental trend of the stock market developed by Charles Dow. The basic step is to compare the trend 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. Size is a confirmatory criterion. The theory uses elements of peak and trough analysis. Dow Theory postulates three phases of a trend: accumulation, when smart money starts buying or selling; Public participation, when the wider public joins in; And distribution, when the smart money comes out.
There are a number of ways to trade the DJIA. The first is the use of ETFs that allow investors to trade the Dow Jones Industrial Average as a single security, rather than having to buy shares in all 30 component companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures allow traders to speculate on the future value of an 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 purchase a share of a diversified portfolio of DJIA stocks and thus provide exposure to the overall index.
