On Thursday, there was a modest uptick for the Dow Jones, as it reached around the 44,500 mark. The mood among equities remained cautiously upbeat following the release of the Producer Price Index (PPI) numbers, which showed a softer impact on inflation than anticipated. Investors are now keeping a vigilant eye on any new tariff announcements from U.S. President Donald Trump.
The Dow Jones Industrial Average (DJIA) gained roughly 120 points on Thursday, testing the waters at the 44,500 level. This came amid some significant revisions to the PPI inflation figures, which, though initially unsettling, turned out to be less severe than those reported in the Consumer Price Index (CPI) earlier in the week. With inflation jitters easing, the rates market is adjusting expectations regarding the Federal Reserve’s timeline for its next rate cut.
President Trump is poised to unveil his plans regarding new tariff threats later during the U.S. market’s second half. These are expected to focus on “reciprocal tariffs” targeting nations that impose tariffs on U.S. products. However, reports out of Washington D.C. indicate that these measures might be delayed for several months. This marks the fourth instance in which the administration has threatened major tariffs, only for their implementation to be postponed, leaving markets somewhat desensitized to such announcements.
In January, core U.S. PPI inflation stood at 3.6% year-on-year, exceeding the predicted 3.3%. Additionally, the previous period’s figure was revised upward from 3.5% to 3.7%. This slight dip post-revision has alleviated concerns about inflationary pressures making a strong comeback. According to the CME FedWatch tool, there’s now an over 50% chance that the Federal Reserve might execute at least a 25 basis points rate cut by September, diverging from earlier forecasts that pegged the action for December.
Moving on to the state of equities: Despite Thursday’s lackluster average for the Dow, around two-thirds of the DJIA’s stocks ended the day on a higher note. Nvidia (NVDA) surged by 3.3%, finishing at $135 a share, bolstered by a high demand in microchip sales, boosting the tech sector. Conversely, Goldman Sachs (GS) saw a minor dip, trading down 0.8% at $644 per share.
Looking ahead at the Dow’s trajectory, the 44,500 level has become somewhat of a familiar zone. Since mid-January, the index has been oscillating in a range between 44,000 and 45,000. Buyers have been unable to break into new record territories, yet sellers haven’t managed to push the DJIA downward significantly.
From a technical standpoint, bullish pressure appears to hold sway, with activity lingering above the 50-day Exponential Moving Average (EMA) stationed at about 43,850. The difference between intraday prices and the long-term 200-day EMA, which stands near 41,800, has narrowed recently, although the Dow Jones remains buoyant, having surpassed its long-term average since November 2023. Remarkably, the index has closed higher in 11 of the last 14 months.
The Dow Jones Industrial Average, often seen as a bellwether for the U.S. stock market, comprises 30 major stocks. It’s price-weighted and excludes broader market factors like those captured by the S&P 500, drawing some critiques for this exclusion. The DJIA is significantly influenced by the companies’ performance within it, broader macroeconomic data, and shifts in interest rates as determined by the Federal Reserve.
The theory developed by Charles Dow for market trend identification, known as Dow Theory, plays a crucial role in guiding investors. It emphasizes following trends where the DJIA and the Dow Jones Transportation Average (DJTA) move in tandem. Volume trends add further confirmation. Dow’s methodology consists of accumulation, public participation, and distribution phases, marking strategic points for trading decisions.
For those interested in trading the DJIA, several avenues exist. One can invest in Exchange-Traded Funds (ETFs), like the SPDR Dow Jones Industrial Average ETF (DIA), which simplifies trading by encapsulating the index into a single security. Futures contracts and options offer additional paths to speculate or secure positions on its future performance. Furthermore, investing in mutual funds can provide exposure across the entire index, diversifying one’s portfolio.
