The Dow Jones took a bit of a dip on Friday, retreating around the 44,300 mark. Even though the week wrapped up quietly, stocks are positioned for a strong finish. The US PMI numbers came in with mixed results, yet had minimal impact on the markets at large.
The Dow Jones Industrial Average (DJIA) pulled back a bit on Friday, slipping around 200 points during a sluggish trading session. Despite this dip, the Dow is closing out an overall robust week, having climbed about 2.3% since the market opened on Monday. This marks the second consecutive week of gains for the index, suggesting a possible return to a bull market following a six-week downturn.
President Donald Trump’s actions have helped boost market optimism this week. Despite his campaign trail promises, he held off on implementing immediate tariffs. Furthermore, he stated his intention to “demand” lower interest rates from the Federal Reserve and expressed plans to call for reduced oil prices from Saudi Arabia and OPEC.
The S&P Global Purchasing Managers Index (PMI) for January delivered more mixed signals than forecasted. Some survey respondents noted a stronger-than-expected outlook for growth in the manufacturing sector. However, service sector businesses seemed less optimistic about the future than anticipated.
In January, the Manufacturing PMI rose to 50.1 from December’s 49.4, exceeding the predicted 49.6. Meanwhile, the Services PMI fell to 52.8 from 56.8, which was notably below the expected 56.5. Despite this decrease, the index remains positive, indicating that purchasing managers who responded don’t foresee significant growth in the upcoming month but aren’t anticipating a contraction either.
Heading into the weekend, the Dow faced some pressure with heavier losses in significant stocks causing a slight decline. Nevertheless, the index stands relatively stable as approximately half of its listed stocks are on the rise. Disney’s shares surged by 1.8% to hit $113, buoyed by strong past performances, while Nvidia saw a drop of 2.5%, falling below $144 as concerns mount about the sustainability of its previous high growth rates.
Looking ahead, the Dow is once again nearing record highs above the 45,000 threshold, a level last reached in late November. After a 7.4% downward shift over six weeks following that peak, market momentum appears to be recovering as investors regain their appetite for risk.
From January’s low of 41,730, the Dow has climbed 6.8%, nearing the 44,500 territory after a solid performance in most of the recent nine trading sessions. The key barrier to breaking new records is the 45,000 level, while any pullback to the 50-day EMA near 43,275 might slow down the current bullish momentum.
Switching gears to a brief insight into the Dow itself—the Dow Jones Industrial Average is one of the world’s oldest stock indexes comprised of 30 key US stocks, chosen not by market cap but by price. It’s calculated by dividing the total stock prices by a divisor, currently sitting at 0.152. Established by Charles Dow, who also founded the Wall Street Journal, it has faced criticism for not representing the broader market as comprehensively as indices like the S&P 500.
Several factors influence the DJIA, with the performance of included companies’ quarterly earnings playing a major role. Macro-level economic data from the US and internationally also impact the index by swaying investor sentiment. Interest rates set by the Federal Reserve affect the DJIA since they influence credit costs crucial to many corporations. Consequently, inflation and other metrics that guide Fed decisions can be significant drivers of the Dow’s performance.
Dow Theory offers another angle on understanding market movements, developed by Charles Dow himself. This method looks at the trends within the DJIA and the Dow Jones Transportation Average. The theory identifies three phases of trends: accumulation, public participation, and distribution, which helps investors make informed decisions based on market movements.
For those interested in trading the DJIA, there are multiple avenues, such as ETFs, which allow trading the index as a single security. The SPDR Dow Jones Industrial Average ETF (DIA) is one prominent example. There are also futures and options available for speculation on or investing in the index, alongside mutual funds offering diversified exposure to the Dow’s performance.
