Dow Jones Industrial Average treads water ahead of Fed rate call
The Dow Jones Industrial Average (DJIA) is trading in a tight range on Thursday, testing close to record highs set earlier this week near 43,800. Markets surged this week after 2024’s US presidential election revealed a clear path to victory for former President Donald Trump, and markets are holding close to the top end in preparation for a further push higher on the back of a widely-anticipated rate cut from the Federal Reserve (Fed).
According to the CME’s FedWatch Tool, rate traders are pricing in an all-but-confirmed 25 bps rate trim from the Fed late during Thursday’s US market session, with99.1% odds for a quarter-point rate cut to follow-up September’s outsized 50 bps opening rate slash. Investors hoping for a final quarter-point rate trim in December are battling it out with some expectations that the Fed may hold after November, with 67% odds of one last 25 bps rate cut on December 18.
University of Michigan (UoM) Consumer Sentiment Index figures due on Friday will wrap up the week’s hectic release schedule. Median market forecasts expect the UoM’s sentiment survey to tick upwards to 71.0 in November after the previous month’s cautious step into 70.5.
Dow Jones newsThe Dow Jones is shuffling its feet on Thursday, with the major equity board pulling into the middle. Intel (INTC) has recovered around 4%, climbing to $26 per share in a rebound after it was announced that the legacy chipmaker would be removed from the Dow Jones this week, ending a 25-year on the major stock index. On the low end, JPMorgan Chase (JPM) slipped nearly 4% lower, falling below $238 per share following a stellar post-election rally.
Dow Jones price forecastThe Dow Jones’ latest bullish push has sent the major equity index within reach of the 44,000 major handle. The DJIA is now up nearly 17% on the year, climbing 5.33% bottom-to-top in October alone.
With the Dow Jones testing deep into bull country, short pressure will be building to drag price action back down to the 50-day Exponential Moving Average (EMA) near the 42,000 key price level. Despite a clear way forward for bears, a lack of technical turnaround points with bids tapping record high territory makes it difficult to price in a short entry point; it turns out rising knives are just as difficult to catch as falling ones.
Dow Jones daily chartMonetary 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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