Dow Jones Industrial Average sees little bullish momentum on Thursday
- The Dow Jones treaded water on Thursday as markets await next week’s Fed rate call.
- Markets are tilting firmly into hopes for a third straight rate cut on December 10.
- Challenger job cuts data reaffirmed a slowing in the US labor market.
The Dow Jones Industrial Average (DJIA) spun in a tight circle near 48,000 on Thursday before retreating around 200 points. Equity markets are taking a break and slowing their momentum through the back half of the trading week as investors’ focus remains fully pinned on the upcoming Federal Reserve (Fed) interest rate decision slated for next week.
Fed rate cut expectations dominate
Markets remain fully committed to expecting a third straight interest rate trim from the Fed on December 10. According to the CME’s FedWatch Tool, rate traders are pricing in nearly 90% odds of a quarter-point rate cut next week. Official datasets are still lagging well behind the curve as federal agencies struggle to play catchup following the longest US federal government shutdown in history. Recent private datasets have teased that the US labor market could be crumbling further heading into the year’s end, keeping trader expectations of further rate cuts on the high side.
US data supports further rate moves
Challenger job cuts fell back in November, declining to 71.3K after the previous month’s eye-watering 153K headline figure. Still, the figures are hiding some particular gloomy clouds. November’s layoff figures are 24% higher than at the same time in 2024, and the year-to-date job cuts figure of 1.17 million stands as one of the worst non-recession years on record.
Before the Fed can gather to deliberate on interest rates, the latest Personal Consumption Expenditures Price Index (PCE) inflation report will drop on Friday. The figures are from September, and are far too backdated to be immediately relevant to the Fed’s deliberations for a December interest rate cut. However, a hard upswing, even in old data, could throw a wrench in the works for a third straight interest rate trim.
Dow Jones daily chart
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.