Dow Jones Daily Price Analysis – US 30 Retraces as Investors Eye CPI Release

The Federal Reserve’s minutes show strong support for a 50-bps rate cut, but traders are now mostly expecting a 25-bps cut in November.

Key Points

• The Dow closed at 42,503.00 on Wednesday, up 1.04% on Fed policy optimism.
• Today, it dipped 0.06% to 42,479.00 ahead of U.S. CPI data.
• Investors watch earnings, rising Treasury yields, and global risks like oil prices.

Dow Jones Daily Price Analysis – 10/10/2024

The Dow Jones Industrial Average closed Wednesday at 42,503.00, marking a 1.04% increase from its open of 42,067.00, driven largely by optimism surrounding Federal Reserve policy direction and recent strong economic data. 

Today, the Dow is trading slightly lower at 42,479.00, down 0.06% from its open of 42,504.00. The dip appears to be influenced by growing uncertainty around inflation, as market participants brace for the U.S. CPI data set to be released later today. 

Investor Sentiment Ahead of Inflation Report

Stock futures turned red on Thursday as investors braced for the CPI release, which is expected to provide fresh insights into the Federal Reserve’s battle with inflation. Dow E-minis futures were down by 63 points (0.15%) in pre-market trading, reflecting a cautious tone among traders.

The September CPI is forecasted to show a slight dip in month-over-month inflation to 0.2%, while core inflation remains stable at 3.2% on an annual basis. This cooling trend could signal that inflation is leveling off, reinforcing the idea that the Fed is unlikely to make any significant deviations from its current path of 25-basis-point rate cuts through the year-end.

Federal Reserve Minutes and Monetary Policy Outlook

The Federal Reserve’s minutes from the last meeting revealed a “substantial majority” of policymakers backing the 50-basis-point rate cut in September, which supported the Dow’s record highs on Wednesday. However, the recent strong economic performance has prompted traders to reduce their bets on aggressive rate cuts moving forward. Currently, markets are pricing in an 82% likelihood of a 25-basis-point rate cut in the upcoming November meeting, with a slim 18% chance of no rate change.

If inflation continues to moderate and economic data remains robust, the Fed is likely to adopt a more measured approach, which would be positive for the broader equity market, keeping upward pressure on the Dow.

Earnings Season and Treasury Yields

Investor focus is also shifting to the third-quarter earnings season, with major banks set to kick things off on Friday. Analysts are projecting 5% year-over-year growth for the S&P 500, which will be a litmus test for whether the recent rally in U.S. equities can be sustained. Positive earnings reports from major corporations could boost the Dow and support continued price resilience.

However, headwinds remain. Rising Treasury yields, particularly the benchmark 10-year yield, hovering near its highest levels since July, are a concern for equity investors. Higher yields typically increase borrowing costs and compete with equities for investor capital, potentially dampening future gains.

Broader Economic Concerns and Geopolitical Factors

Apart from inflation and earnings, investors are closely watching the global economic landscape. The Middle East conflict has contributed to rising oil prices, adding another layer of uncertainty to the market. Oil price fluctuations can influence corporate profitability and consumer spending, both of which are vital drivers for the Dow.

Additionally, the upcoming U.S. presidential election is expected to bring heightened market volatility as investors assess the implications of potential policy changes.

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Dow Jones Technical Analysis – 10/10/2024

The US30 is currently bullish as the index is strongly trading above the 200 EMA. Earlier in the session, price had retested a key level and rallied to the upside. However, we are beginning to see a pullback heading to the same key level again.

Since the trend is clearly bullish and the RSI has earlier been oversold, the price action is clearly supporting a long position around the key level or pivot point. However, since the CPi is around the corner, we may see price break through the key level in order to “test” the bullish trendline before continuing its upward movement.

Dow Jones Fibonacci Key Price Levels 10/10/2024

Short-term traders planning to invest in US 30 today should keep a close eye on the following key price levels for the day: