Dow Jones Grinds To Record Highs Amid Crucial Week – Dow Jones Analysis & Prediction

Key Points

• The Dow Jones edged higher on Monday to print a new record high and ended September 1.84% up despite a difficult start.
• Powell sees two more rate cuts totaling 50bps this year, but the markets still think differently. 
• Non-Farm Payrolls Day looms as busy end to the week expected. 
• Have we seen the top of the Dow Jones for now?

Market Overview

At one stage in September, the Dow Jones was down over 3% in the month, but thanks to a jumbo cut from the Federal Reserve, this popular stock index rallied to close September +1.84%. That is the fifth consecutive month of gains; the only negative month in the past year came in April.

On Monday, the Dow Jones continued its grind and printed a new all-time high of 42,646 before retreating. The current price of the Dow Jones is 42,234, and traders will be eager to buy any dips in this index going forward.

Powell Plays Down More Jumbo Cuts

Federal Reserve Chair Jerome Powell believes there is no need to rush to cut rates further, which initially disappointed investors. Powell said he sees two more rate cuts this year if the economy continues performing as expected, but those would only total 50 basis points.

However, the markets still don’t believe this, with the CME Fed Watch Tool showing a 70% chance that the Fed will cut by another 75bps by year-end. This disconnect shapes up for a fascinating Q4 in markets, as it seems the markets have gotten ahead of themselves. A larger rate cut now would likely only be because of a slowdown in the economic data, particularly in the labor market. This would not be positive for the Dow Jones and other risk assets. 

Non-Farm Payrolls Looms

Those expecting a quiet end to the week will be mistaken, as it is US Non-Farm Payrolls Day! This occurs on the first Friday of the month and gives the public crucial information on the labor market in the US. The forecast for the Non-Farm Employment Change is 144,000, which is pretty much where we were last month. A figure around this level would likely fuel the soft landing narrative and be positive for risk assets such as the Dow Jones because the labor market is not weakening dramatically.  A figure below 100,000 would likely cause some panic in the markets, and therefore, we should see a fall in the Dow Jones in that case. 

Dow Jones Losing Steam? 

The Dow Jones has been grinding higher recently but is showing signs of losing momentum. Yesterday’s big wick was a representation of the disappointment from Jerome Powell’s comments about rate cuts.

The market structure on the higher time frames is still bullish, with none of the higher lows being broken yet. Therefore, traders must exercise patience and wait for the next dip in this index. A key support area sits at the 38.2% daily Fibonacci retracement, which also has a bullish order block. From here, traders may target the previous record high. A break below that bearish order block could see the Dow Jones slip to 41,000, the 61.7% Fibonacci retracement.