Dow Jones Industrial Average Forecast: Averages decline in risk-off market mood
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UPGRADE- Dow Jones declines on Wednesday amid a more pessimistic market outlook.
- Intel ends plans to buy China’s Tower Semiconductor.
- Dow component The Home Depot spiked on consensus earnings beat on Tuesday.
- Cisco reports earnings after Wednesday close, Walmart reports earnings results on Thursday.
- July US Retail Sales on Tuesday showed strong gains compared to June.
The Dow Jones Industrial Average (DJIA) edges lower on Wednesday amid a mildly pessimistic market mood as traders prepared themselves for the release of the last Federal Reserve meeting minutes.
The decline came despite major retailer Target (TGT) announcing a 27% consensus beat on the bottom line. TGT shares jumped 9% on the news.
On Tuesday, July US Retail Sales came in above expectations, once again showcasing a strong US economy in the face of a high interest rate environment. The economic indicator gained 0.7% on a monthly basis, far exceeding the 0.4% consensus forecast and leading some economists to predict a 3% annualized GDP growth rate for Q3.
That was a good leading indicator for the week since the stock market sees a number of major retailers deliver their Q2 earnings results in parallel. These include Dow Jones components The Home Depot (HD) and Walmart (WMT).
Dow Jones News: Home Depot, Walmart, Cisco, Intel
Dow Jones member The Home Depot (6.3% weighting) initially saw its share price spike quite a bit after releasing earnings early Tuesday. The home improvement retailer reported $4.65 in GAAP earnings per share (EPS), a 4.5% consensus beat, on $42.92 billion in sales, which surpassed the average forecast by nearly $690 million.
Cisco Systems (CSCO) (1% weighting) will report after the close on Wednesday. Wall Street expects adjusted EPS of $1.06 on revenue of $15.05 billion as analysts have unanimously revised upward this quarter’s profit prospects.
Then Walmart (3% weighting) reports on Thursday with what is the most-anticipated earnings release of the week. Analysts have a consensus forecast of $1.71 in adjusted EPS on sales of $159.3 billion. Target’s successful but mixed results portend a decent showing for America’s largest brick-and-mortar retailer. Target handily beat on the earnings portion of its results but missed the consensus sales forecast by $460 million.
Intel (INTC) (0.6% weighting) has axed its plan to acquire China's Tower Semiconductor (TSEM) after failing to receive the necessary approvals from Chinese regulators. Intel now has to pay a $353 million termination fee to Tower Semiconductor. INTC stock shed 2.6% on Tuesday but is slightly ahead in Wednesday's premarket.
Building permits, Housing starts, FOMC minutes arrive Wednesday
They may not be quite as significant as the standout US Retail Sales data from Tuesday, but further economic indicators this week could affect the index in sum total.
The US Census Bureau released data on July’s Building Permits and Housing Starts before the bell on Wednesday. Both indicators served up beats to consensus. Building Permits rose 0.1% MoM compared with the -1.7% reading expected. Housing Starts arrived at 1.452 million, above the 1.448 million that had been forecast.
Later in the afternoon on Wednesday, 14:00 EST, the Federal Reserve is slated to release the minutes from its most recent FOMC meeting. The market expects the Fed to pause interest rate hikes at its September meeting, so special interest will be given to any details that counteract that narrative.
Thursday’s report on Initial Jobless Claims for the week ending August 11 has analysts expecting 240K, slightly below the 248K reading from a week earlier.
Dow Jones FAQs
What is the Dow Jones?
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
What factors impact the Dow Jones Industrial Average?
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
What is Dow Theory?
Dow Theory is a method for 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 follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
How can I trade the DJIA?
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable 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 enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
What they said about the market – Marko Kolanovic
JPMorgan’s Marko Kolanovic argued in an investor note on Monday of this week that it is “too early to declare victory on inflation.” Kolanovic blamed a return to strong economic growth and rising commodity prices for the situation. His line of thinking portends a longer period of central banks keeping interest rates elevated.
“The coming months should see core goods inflation slide, but we believe it is unlikely that this impulse will prove sustained with the global industrial sector set to return to growth and commodity prices now moving higher, and core services inflation is likely to prove sticky.”
Dow Jones Industrial Average forecast
The Dow Jones index broke well below its short-term moving averages on Tuesday, while the 9-day Simple Moving Average (SMA) also crossed below its 21-day SMA. Both of these events foreshadow a continuing downtrend.
The most recent range high for the index came on August 1 at 35,679 – squarely within the 35,200 to 35,750 resistance zone that traders had been watching. Since the DJIA recently broke through the top trendline of an ascending wedge formation on July 18, that trendline might turn into support for the index. It comes at 34,712 and is in line with the range high on December 13, 2022.
If that trendline fails to serve as support, then the Dow Jones index may descend to the ascending lower trendline of the wedge formation near 34,400. The Moving Average Convergence Divergence (MACD) has crossed over bearishly and gestures toward a longer-lasting downtrend.
Dow Jones Industrial Average daily chart
- Dow Jones declines on Wednesday amid a more pessimistic market outlook.
- Intel ends plans to buy China’s Tower Semiconductor.
- Dow component The Home Depot spiked on consensus earnings beat on Tuesday.
- Cisco reports earnings after Wednesday close, Walmart reports earnings results on Thursday.
- July US Retail Sales on Tuesday showed strong gains compared to June.
The Dow Jones Industrial Average (DJIA) edges lower on Wednesday amid a mildly pessimistic market mood as traders prepared themselves for the release of the last Federal Reserve meeting minutes.
The decline came despite major retailer Target (TGT) announcing a 27% consensus beat on the bottom line. TGT shares jumped 9% on the news.
On Tuesday, July US Retail Sales came in above expectations, once again showcasing a strong US economy in the face of a high interest rate environment. The economic indicator gained 0.7% on a monthly basis, far exceeding the 0.4% consensus forecast and leading some economists to predict a 3% annualized GDP growth rate for Q3.
That was a good leading indicator for the week since the stock market sees a number of major retailers deliver their Q2 earnings results in parallel. These include Dow Jones components The Home Depot (HD) and Walmart (WMT).
Dow Jones News: Home Depot, Walmart, Cisco, Intel
Dow Jones member The Home Depot (6.3% weighting) initially saw its share price spike quite a bit after releasing earnings early Tuesday. The home improvement retailer reported $4.65 in GAAP earnings per share (EPS), a 4.5% consensus beat, on $42.92 billion in sales, which surpassed the average forecast by nearly $690 million.
Cisco Systems (CSCO) (1% weighting) will report after the close on Wednesday. Wall Street expects adjusted EPS of $1.06 on revenue of $15.05 billion as analysts have unanimously revised upward this quarter’s profit prospects.
Then Walmart (3% weighting) reports on Thursday with what is the most-anticipated earnings release of the week. Analysts have a consensus forecast of $1.71 in adjusted EPS on sales of $159.3 billion. Target’s successful but mixed results portend a decent showing for America’s largest brick-and-mortar retailer. Target handily beat on the earnings portion of its results but missed the consensus sales forecast by $460 million.
Intel (INTC) (0.6% weighting) has axed its plan to acquire China's Tower Semiconductor (TSEM) after failing to receive the necessary approvals from Chinese regulators. Intel now has to pay a $353 million termination fee to Tower Semiconductor. INTC stock shed 2.6% on Tuesday but is slightly ahead in Wednesday's premarket.
Building permits, Housing starts, FOMC minutes arrive Wednesday
They may not be quite as significant as the standout US Retail Sales data from Tuesday, but further economic indicators this week could affect the index in sum total.
The US Census Bureau released data on July’s Building Permits and Housing Starts before the bell on Wednesday. Both indicators served up beats to consensus. Building Permits rose 0.1% MoM compared with the -1.7% reading expected. Housing Starts arrived at 1.452 million, above the 1.448 million that had been forecast.
Later in the afternoon on Wednesday, 14:00 EST, the Federal Reserve is slated to release the minutes from its most recent FOMC meeting. The market expects the Fed to pause interest rate hikes at its September meeting, so special interest will be given to any details that counteract that narrative.
Thursday’s report on Initial Jobless Claims for the week ending August 11 has analysts expecting 240K, slightly below the 248K reading from a week earlier.
Dow Jones FAQs
What is the Dow Jones?
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
What factors impact the Dow Jones Industrial Average?
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
What is Dow Theory?
Dow Theory is a method for 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 follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
How can I trade the DJIA?
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable 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 enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
What they said about the market – Marko Kolanovic
JPMorgan’s Marko Kolanovic argued in an investor note on Monday of this week that it is “too early to declare victory on inflation.” Kolanovic blamed a return to strong economic growth and rising commodity prices for the situation. His line of thinking portends a longer period of central banks keeping interest rates elevated.
“The coming months should see core goods inflation slide, but we believe it is unlikely that this impulse will prove sustained with the global industrial sector set to return to growth and commodity prices now moving higher, and core services inflation is likely to prove sticky.”
Dow Jones Industrial Average forecast
The Dow Jones index broke well below its short-term moving averages on Tuesday, while the 9-day Simple Moving Average (SMA) also crossed below its 21-day SMA. Both of these events foreshadow a continuing downtrend.
The most recent range high for the index came on August 1 at 35,679 – squarely within the 35,200 to 35,750 resistance zone that traders had been watching. Since the DJIA recently broke through the top trendline of an ascending wedge formation on July 18, that trendline might turn into support for the index. It comes at 34,712 and is in line with the range high on December 13, 2022.
If that trendline fails to serve as support, then the Dow Jones index may descend to the ascending lower trendline of the wedge formation near 34,400. The Moving Average Convergence Divergence (MACD) has crossed over bearishly and gestures toward a longer-lasting downtrend.
Dow Jones Industrial Average daily chart
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