The Dow Jones is finding its footing on Tuesday

• The Dow Jones held steady on Tuesday, treading water near 42,000.
• Geopolitical market tensions eased after the US deterred an Israeli escalation against Iran.
• Investors are now grappling with interest rate cut expectations after last week’s labor print.

The Dow Jones Industrial Average (DJIA) rose on Tuesday, digging near the 42,000 handle as markets chewed on factors pulling investor expectations in several directions. Investor concerns about Israel-Iran escalation eased early Tuesday after the U.S. intervened verbally in the still-simmering Middle East conflict. Risk appetite recovered on the news, but investor sentiment remains tepid as traders grapple with a more heady outlook for Federal Reserve (Fed) rate cuts for the rest of the year.

US President Joe Biden stepped in to directly warn Israel that a direct retaliatory strike against Iran would be unwise, helping to take some of the build-up pressure and prevent the Middle East conflict from spreading to other neighboring countries. Iran launched a retaliatory strike against Israel this weekend in response to Israel’s invasion of Lebanon.

Rate markets continue to bet overwhelmingly on a quarter-point rate cut from the Fed in November. According to CME’s FedWatch tool, rate markets see a near 90% chance that the Fed will follow the jumbo 50 bps cut in September with a more modest 25 bps on Nov. 7. Markets were pushed back on hopes of a second double cut after the US. labor force data printed well above expectations last week. Fed officials have widely telegraphed that a weakening of the US labor market would be needed to push the Federal Reserve to further rate cuts.

Dow Jones News

Just over half of Dow Jones listed stocks are in the green on Tuesday, but overall gains remain thin as the higher ground is evenly spread across several sectors. Caterpillar ( CAT ) fell 2.5% to $388 a share after China announced no further subsidies to support construction, and Travelers Companies rose 1.75% to $230 a share , in a weak recovery after the -2.4% decline in the month.

Dow Jones Price Forecast

Despite a bearish start to the trading week, the Dow continues to trade north of its 50-day exponential moving average (EMA) near 41,220. The major stock index has bounced back from the 50-day EMA several times in recent months as an uptrend holds steady.

The MACD has issued bearish warnings as the Dow Jones trades deep in bull country, but downside momentum remains limited as the indices continue to tip towards the top.

Dow Jones Daily Chart