The Dow Jones stumbles on Thursday

VaselineSeptember 5, 2024

0 4 minutes read

The Dow Jones rebounded 400 points on Thursday as economic concerns persisted.
Investors are increasingly worried about a recession as hiring slows.
Friday’s NFP jobs data looms on the horizon as investors begin to stress.

The Dow Jones Industrial Average (DJIA) fell 400 points on Thursday, losing weight for the second time this week, after US jobs data came in below expectations. Stocks have since recovered from the initial shock sell-off, but the Dow Jones is struggling to return to flat levels for the day. ADP Employment Change showed the lowest rate of job additions since February 2021, triggering a new round of risk aversion as investors grapple with the threat of a possible recession in the US economy.

According to payroll processor ADP, the U.S. added 99,000 new jobs in August, down from 111,000 in July and well below the 145,000 expected. August ADP additions are the lowest pattern since the start of 2021, sparking a new round of risk aversion and reigniting investor concerns that the US could be headed for a recession.

The ADP jobs report serves as a benchmark for what markets can expect from Friday’s upcoming US non-farm payrolls (NFP) report, albeit one with a shaky track record of accuracy. The August NFP print is the last significant labor update before the Federal Reserve’s (Fed) next interest rate request on September 18, when Fed policymakers are widely expected to kick off a rate-cutting cycle.

According to CME, rate markets are currently betting on 40% odds that the Fed will open the doors to a 50bps cut later in the month, with the remaining 60% betting on a more modest opening rate cut of 25bps. Investors anticipate using Friday’s NFP print as a way to gauge the depth of the Fed’s first rate cut since the Fed cut 100 bps in March 2020.

Economic indicator

ADP employment change

ADP Employment Change is an indicator of private sector employment released by the largest US payroll processor, Automatic Data Processing Inc. It measures the change in private employment in the US. In general, an increase in the indicator has positive implications for consumer spending and stimulates economic growth. So a high reading is traditionally seen as bullish for the US dollar (USD), while a low reading is seen as bearish.

Dow Jones News

The Dow Jones fell about 400 points on Thursday, before recovering to a more modest 150-point drop. Despite a bid for a broad-based recovery, the DJIA was still heavily tilted to the bear side, with all but five of the index’s constituent stocks testing in the red. Merch & Co ( MRK ) managed a 3.28% gain despite Thursday’s tensions, rising to $119.60 a share, while biotech firm Amgen ( AMGN ) fell 1.62% , up to $325.28 a share, as traders take a breather from the medical technology auction. firm, which is still up over 28% over the past year.

Elsewhere in the Dow, Verizon (VZ) stumbled after shareholders reacted poorly to news that VZ would pay more than $20 billion to acquire Frontier Communications (FYBR).

Dow Jones Price Forecast

Despite a fresh intraday test of the low, the Dow Jones continues to play in a technical range just south of the 41,000 handle. The DJIA is still trading south of recent all-time highs above 41,500, but chances of an extended downside pullback are draining the index as bidders continue to challenge downside momentum.

The longer-term trend still clearly favors the upside, and even a determined push from short-stacking will run into trouble at the 50-day Exponential Moving Average (EMA) rising to 40,300.

Dow Jones Daily Chart

Dow Jones FAQ

The Dow Jones Industrial Average, one of the world’s oldest stock indices, is compiled from the 30 most traded US stocks. The index is weighted by price rather than capitalization. It is calculated by summing the prices of the constituent shares and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In subsequent years, it has been criticized for not being broadly representative enough, as it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.

Many different factors determine the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in the company’s quarterly earnings reports is the main one. US and global macroeconomic data also contribute as they impact investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA because it affects the cost of credit, on which many corporations depend heavily. Therefore, inflation can be a major factor as well as other indicators influencing the Fed’s decisions.

The Dow Theory is a method of 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 watch for trends where both are moving in the same direction. Volume is a confirmation criterion. The theory uses peak and trough elements of analysis. Dow’s theory posits three phases of a trend: accumulation, when the smart money starts buying or selling; public participation, when the general public joins in; and distribution, when the smart money comes out.

There are several ways to trade the DJIA. One is the use of ETFs that allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A prime example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures allow 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 allow investors to buy one share of a diversified portfolio of DJIA stocks, thereby providing exposure to the overall index.

VaselineSeptember 5, 2024

0 4 minutes read