Dow Jones falls on Wednesday as buyers take a breather

Vaseline3 weeks ago

0 3 minutes read

Dow Jones falls on Wednesday as buyers take a breather

The Dow Jones edged bearish, falling 300 points.
Exhaustion plays are on the cards with indices deep in overbought territory.
Despite a peak cut, the Dow Jones is on pace for another record month.

The Dow Jones Industrial Average (DJIA) retreated on Wednesday, falling about 300 points and dipping back below the 42,000 mark, as the heavyweight index takes a break from a period of repeated breakouts into record territory.

Treasury yields rose on Wednesday and most U.S. indexes are testing in the red, with the Dow the worst hit, falling 0.8 percent in U.S. trading. Market focus is shifting back to the state of the US economy following last week’s 50 bps rate cut by the Federal Reserve (Fed).

U.S. consumer confidence indicators fell this week as the average U.S. consumer didn’t share in the stock market’s exuberance over Fed rate cuts, key confidence gauges fell to three-year lows and consumer inflation expectations for the next 12 months increasing. This Friday will see another update of US Personal Consumption Expenditure (PCE) inflation numbers.

New home sales also fell in August, falling 4.7% to 716K from a revised 751K in the previous month. Meanwhile, investors will see another print of US Gross Domestic Product (GDP) growth for the second quarter, expected to hold steady at 3.0% on an annualized basis. Thursday will also bring a series of speeches and public appearances from several Fed officials, including Fed Chairman Jerome Powell.

Dow Jones News

Most of the Dow Jones industrial average tipped into the red on Wednesday, with about two-thirds of the board easing up for the day. Intel ( INTC ) still managed to extend a short-term rally, extending another 2.5% to $23.40 a share, but the beleaguered chipmaker is still down more than 53% YTD.

Amgen ( AMGN ) fell nearly 5% on Wednesday, dragging the Dow down overall, and fell below $315 a share for the second time since early August. The drug company’s recent foray into a new eczema drug called rocatinlimab yielded results that exceeded expectations for efficacy and also underperformed competitor products that already exist to treat atopic dermatitis.

Dow Jones Price Forecast

Wednesday’s bearish performance by the Dow Jones puts the index at risk of closing in the red for the week as overextended buyers run out of gas and give short pressure a chance to recover. However, despite a short-term decline, the index is still firmly planted on the long side of the trend, and an accumulation of short positions could make way for a return to record chart territory.

If the bears win the short-term tug of war, the Dow could return to the 50-day exponential moving average (EMA) near 40,800.

Dow Jones Daily Chart

Fed FAQ

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to ensure price stability and to promote full employment. Its main tool for achieving these objectives is the adjustment of interest rates. When prices rise too quickly and inflation is above the Fed’s 2 percent target, it raises interest rates, raising borrowing costs throughout the economy. This results in a stronger US dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates to encourage borrowing, which weighs on green interest.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. Twelve Fed officials attend the FOMC—the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve rotating one-year terms. .

In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy higher quality bonds from financial institutions. QE usually weakens the US dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of bonds it holds at maturity to buy new bonds. It is usually positive for the value of the US dollar.

Vaseline3 weeks ago

0 3 minutes read

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