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- Dow Jones Industrial Average Forecast: DJIA extends recovery as Fed's Powell hits familiar beats
Dow Jones Industrial Average Forecast: DJIA extends recovery as Fed's Powell hits familiar beats
- Dow Jones gains, but thinly in easy Thursday trading.
- Fed’s Powell repeat appearance delivers little of note to investors.
- Market focus pivots to Friday’s US NFP jobs report.
The Dow Jones Industrial Average (DJIA) is up a little over a quarter of a percent on Thursday as investors take the opportunity to bid up equities and readjust their exposure after Federal Reserve (Fed) Chairman Jerome Powell’s second appearance before US government oversight committees produced little of note. Markets are now gearing up for Friday’s US Nonfarm Payrolls (NFP) jobs report.
Fed Chair Powell reiterated most of his statement from Wednesday’s appearance before the US Congressional House Financial Services Committee. Thursday’s Q&A with the Senate Banking Committee largely echoes information the market has already heard. Equities are paring away recent losses, and the DJIA seeks to reclaim the 39,000.00 handle.
Technology stocks are leading the market rebound, with the Technology Sector climbing over 2% on Thursday. The Real Estate and Financials Sectors are the market’s soft spots on the day, shedding around a third and a tenth of a percent, respectively.
Dow Jones News: Investors thankful for no Fed surprises turn to focus on US NFP
The DJIA is on the higher side for Thursday but still lagging behind the Standard & Poor’s 500 and NASDAQ Composite indexes, which are up around 1.7% and 1.10%, respectively. Fed Chair Powell’s repeat appearance gave investors little new to chew on, with the Fed head sticking to the “eventually, but not right now” stance on when the Fed might begin cutting interest rates.
Read more: Fed Chair says removing restrictive stance of policy could begin this year
Markets are gearing up for another US NFP print on Friday, and investors expect the February jobs additions to be 200K, down from January’s 11-month peak of 353K new payroll positions.
NFP Preview: Forecasts from 10 major banks, employment continues to rise strongly
Intel Corp. (INTC) is leading the Tech Sector charge on the Dow Jones on Thursday, climbing nearly 4% to trade above $46.00 per share. On the downside, the day’s weakest performer on the Dow 30 is Amgen Inc. (AMGN), falling around 1.75% to trade below $272.00 per share after the biotech company’s board revealed a $2.25 per share dividend. The dividend is slated to be paid out on June 7. AMGN’s stock sees further discounting as Amgen currently holds a Forward P/E ratio of 14.39 compared to the industry average of 22.45 by similar companies in the same sector.
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.
DJIA technical outlook
The Dow Jones Industrial Average (DJIA) is struggling to chalk in further ground above 38,800.00 as the index sees intraday technical rejection from a resistance zone priced in from 38,800.00 to 38,950.00. The major equity index is up for Thursday, but gains are looking capped as markets flows pull into the midrange ahead of Friday.
The DJIA is set to etch in a second day in the green after falling for two consecutive sessions, but the index is still down around 1.4% from February’s peak near 39,250.00.
DJIA 5-minute chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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