Dow Jones retreats ahead of Fed rate call in red band

• Dow Jones heads toward 41,500 as markets await Powell’s appearance.
• The Fed is set to begin a new rate cut cycle on Wednesday.
• Markets are struggling to expect a 50 or 25 bps cut.

The Dow Jones Industrial Average (DJIA) reached mid-range near 41,500 on Wednesday as investors await the Federal Reserve’s (Fed) first interest rate cut in more than four years. Markets started 2024 hoping for an initial rate cut in March, but have so far been fought through to Q3. Now it looks like the Fed is ready to play ball.

Read more: Federal Reserve prepares to cut interest rates in key meeting for markets

Talking points from Fed officials, including Fed Chairman Jerome Powell, have turned to interest rate cuts over the past month, giving hope to markets that have hunched over expectations of rate moves for most of the year. The Fed is now widely expected to begin a new rate-cutting cycle on Wednesday, and markets have already moved past the actual event to play tug-of-war with expectations of the depth of an initial cut, as well as the number of cuts expected to occur for the rest of the year.

According to CME’s FedWatch tool, rate markets are roughly in balance with bets on how deep the Fed’s first rate cut in four years will be. Rates traders have priced in a 55% chance the Fed will kick things off with a 50bps cut right out of the gate, with the remaining 45% expecting a steadier 25bps initial cut. The Fed drops its latest rate decision around 14:00 EST/21:00 GMT.

Dow Jones News

The Dow Jones is roughly balanced heading into the Fed rate call window, with about half of the index’s listed stocks in the green in early Wednesday trading. Intel ( INTC ) is retreating from a recent rally, falling -2.3% to fall below $21 per share, while Apple ( AAPL ) is back up 2% to $221 per share. Apple is recovering after disappointing pre-sales of its latest flagship iPhone disappointed investors, forcing the tech stock lower earlier this week.

Elsewhere in stocks, Honeywell ( HON ) is down ahead of Wednesday’s Fed call, despite a recent announcement of a partnership with Samsung to make carbon capture devices.

Dow Jones Price Forecast

Despite a tight pre-Fed pattern on Wednesday, the Dow Jones is still holding close to record highs set earlier this week. The DJIA could make another break for higher ground above Tuesday’s record bid of 41,832.

However, near-term price action is playing out at the top of a recent four-day run that sent the Dow Jones up nearly 4.5% from the bottom to the top. A run on Fed expectations could see the main stock index rotate back to the bottom and drop back toward the 50-day exponential moving average (EMA) near 40,538.

Dow Jones Daily Chart