Thursday, February 2, 2023

Dow Jones Dips As Fed Jitters Unnerved Markets, US CPI…

(Menafan- DailyFX) Dow Jones Outlook:

  • US stocks started the week on re-evaluation of market monetary policy amid rising price pressure in the economy
  • The Dow Jones fell 0.45% to 36,068 but recovered from its worst daily level in late trading as dip buyers emerged
  • All eyes will be on the US CPI data on Wednesday to get a clue on the inflation outlook

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Read most: S&P 500 forecast for the coming week

US equities retreated on Monday, but ended the day from their lows as dip buyers emerged to blunt the sell-off, which initially triggered a sharp rally in the most speculative corners of the market, such as stocks in tech and long cash-flow periods. Pullback started.

At the closing bell, the Dow Jones (DJI) fell 0.45% to 36,068, while the S&P 500 (SPX) fell 0.14% to 4,670. Elsewhere, the Nasdaq 100 (NDX) erased a 2.7% decline and managed to climb 0.14% to 15,614 as US Treasury rates dipped below their highs.

During the session, the US 10-year yield jumped briefly to 1.80%, its highest level since January 2020, up 28 basis points in six days. Growth in nominal rates is a headwind for tech and growth stocks with overvalued valuations, but it becomes a problem for the broader market when the magnitude of short-term volatility is rapid and more than 2 standard deviations above the average. happens, which we are now witnesses

In the days ahead, Wall Street is likely to remain on the defensive as traders continue to hedge against downside risks amid ongoing monetary policy reassessment due to rising inflation, partly driven by supply chain shocks.

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Focusing on inflation, the US Bureau of Labor Statistics will release the latest Consumer Price Index report on Wednesday. Analysts expect the December headline CPI to rise to 7.1% y/y from 6.8% y/y, its fastest pace since 1982. One hot print would be to raise the stakes that the Federal Reserve will withdraw housing more quickly and aggressively than initially anticipated to deal with rising inflation. forces. At the moment, investors see the Fed’s borrowing costs rising threefold in 2022, but a fourth increase, with quantitative tightening (balance sheet runoff), is slowly creeping in on expectations. Bets on a steep normalization path will put upward pressure on the Treasury curve, promote cross-market volatility and hurt expensive stocks trading at rich multiples.

In the current environment, technology and growth plays will struggle and remain biased towards the downside, but the value-oriented segment is likely to stabilize and start consolidating once nerves calm and the dust settles, especially if the economy is expected to settle down. Performs as per and expands beyond capacity. , Value stocks are generally more cyclical in nature and tend to make gains when bond yields rise, as long as the move is measured. All of this suggests that the blue-chip Dow Jones is well poised to outperform the Nasdaq 100 and the S&P 500 in the coming weeks and months.

Dow Jones Technical Analysis

The Dow Jones has not been immune to the ongoing sell-off on Wall Street, with the index falling over the past few days after hitting an all-time high last Tuesday. Following the recent pullback, the price is approaching channel support near 35,500. Traders should keep a close watch on this technical area, as a move below it could consolidate bearish momentum and pave the way for a test of the 200-day simple moving average of ~34,850.

On the other hand, if buyers gain control of the market and the Dow moves higher, the first resistance to watch out for could be seen at 36,200. If the bulls manage to reclaim this level, the next upside target appears to be at 36,550 and then at 36,935, the index’s record high.

dow jones technical chart

Dow Jones chart created in TradingView

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— Written by Diego Coleman, contributor


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Nation World News Desk
Nation World News Desk
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