On Friday, the Dow Jones Industrial Average took a significant tumble, dropping 700 points after an unexpectedly strong Nonfarm Payrolls (NFP) report for December. This surge in job figures spooked investors, drastically reducing expectations for Federal Reserve rate cuts this year. Furthermore, consumer sentiment and inflation expectations both saw increases, which compounded the market’s risk aversion.
The Dow Jones faced considerable pressure as the robust NFP report revealed a notable uptick in hiring, far exceeding investor forecasts. The University of Michigan’s consumer survey added fuel to the fire, with consumers anticipating higher inflation over the next five years. This sentiment adds to the market’s worries, as both strong job growth and rising inflation expectations make it less likely for the Fed to slash rates.
In December, U.S. NFP figures shot up by 256,000 jobs, surpassing the anticipated 160,000, while November’s numbers were slightly revised down to 212,000. Meanwhile, the University of Michigan reported a decline in its Consumer Sentiment Index to 73.2 in January from 74.0, further below expectations of 73.8. The Consumer Inflation Expectations for the next five years also crept up to 3.3% from the previous 3.0%.
Investors are now pulling back from hoping for Fed rate cuts in 2025, instead shifting their portfolios towards the safer dollar. Banks like Bank of America and Goldman Sachs released research noting a consensus shift towards fewer rate cuts from the Fed next year. According to the CME’s FedWatch Tool, financial markets now predict just one 25 basis point cut this year, possibly not before June.
Dow Jones News
Friday saw the Dow Jones struggling, with fewer than ten stocks managing to stay positive as the week concluded. Leading the losses was The Travelers Companies, plummeting 4.3% to $232 per share. Following closely, Goldman Sachs fell 3.5%, dipping under $560 per share, a mark it hadn’t touched in nearly a month.
Dow Jones Price Forecast
The fallout from Friday’s NFP report has nudged the Dow Jones close to its 200-day Exponential Moving Average near 41,160. It looks set to end under 42,000 for the first time since the early days of November, marking a drop of more than 7% from its December highs of 45,065.
Although the Dow’s slump is stirring concerns about a prolonged downtrend, the index remains above previous significant lows supported by the 41,600 level. Even with December’s underwhelming performance and a shaky start in January, the Dow has recently enjoyed a bullish streak, climbing almost 20% from its lowest to highest points during 2024.
Dow Jones Daily Chart
The Dow Jones Industrial Average stands as a historic stock market index, including 30 of the most actively traded stocks in the U.S. This price-weighted index, created by Charles Dow, also the founder of the Wall Street Journal, has faced criticism for its limited range compared to broader indices like the S&P 500. The calculation involves summing the stock prices and dividing by a divisor, now at 0.152.
Various elements drive the Dow Jones Industrial Average. The collective performance of its component companies, published in quarterly earnings reports, is crucial. Moreover, macroeconomic indicators, both domestic and international, play a role as they influence investor sentiment. Fed-set interest rates also significantly affect the Dow, impacting corporate borrowing costs. Consequently, inflation and other factors steering Fed policies can be major drivers for the DJIA.
Dow Theory, developed by Charles Dow, is a technique to identify the stock market’s primary trend by aligning the movements of the DJIA and the Dow Jones Transportation Average. The theory emphasizes volume as a confirming factor and involves analyzing peak and trough trends. It divides trends into three phases: accumulation, led by smart investors; public participation, when the general public gets involved; and distribution, when the initial investors start cashing out.
Investors have multiple avenues to trade on the DJIA. Exchange Traded Funds (ETFs) offer a direct way, allowing for investment in the index as a single asset. The SPDR Dow Jones Industrial Average ETF (DIA) is a prime example. DJIA futures enable speculation on the index’s future values. Options provide the choice, without obligation, to buy or sell at a set future price. Mutual funds that invest in DJIA stocks furnish a diversified approach to gaining index exposure.
