Dow Jones Industrial Average Forecast: DJIA outperforms NASDAQ, S&P 500 at Wednesday open

• Dow Jones index gained 0.85% on Tuesday, breaking above ascending triangle topline.
• DJIA lost 2.65% over the previous two weeks.
• US Treasury yields rise across the curve, especially longer maturity.
• 3M settles $6 billion lawsuit with US military personnel over faulty earplugs. 
• Market awaits US PCE, Nonfarm Payrolls on Thursday and Friday.

 

Dow Jones Industrial Average (DJIA) is outperforming the NASDAQ Composite and the S&P 500 on Wednesday morning. A half hour into the session, the Dow Jones has gained 0.44%, while NASDAQ Composite and S&P 500 are up 0.3%.

Before the opening bell, another preliminary GDP print for the second quarter showed an annualized rate of 2.1%. This was lower than the prior 2.4% preliminary reading for the quarter ending in June and gave more credence to the belief in a soft landing for the US economy. Higher inflation readings from Germany and Spain early on Wednesday sent the S&P 500 and NASDAQ 100 futures lower, but the GDP print picked them back up.

The Dow index registered its best outing on Tuesday since August 7 as the 30-strong stock index rose 0.85%. The buoyant market developed in response to lower-than-expected JOLTS Job Openings data for July that showed a greater than 300K drop in US employment openings. Job Openings were at their lowest level in about two-and-a-half years.

Dow Jones News: 3M puts second major lawsuit behind it

A long-time constituent of the Dow – added in 1976 and now bearing an approximate 2.4% weighting – 3M Company (MMM) helped the index rise this week after the industrial’s board agreed to a $6 billion settlement stemming from US military veterans suing the manufacturer for combat earplugs they allege led to hearing loss.

3M stock rose 6.2% over the past week, and on Tuesday Wolfe Research upgraded the Dow constituent from Underperform to Peer Perform on the settlement. The research firm had earlier expected a settlement exceeding $10 billion and as high as $20 billion.

The earplug settlement comes after June’s $12.5 billion tentative settlement for the so-called “forever chemicals” known as PFAS that 3M developed and manufactured for years. The settlement would give cash payments to municipal water providers that alleged injury from the chemicals. That settlement was given preliminary approval by a judge on Tuesday, but other US states and individuals are yet to settle their suits. 

By one estimation, there are more than 10,000 individuals represented by multiple law firms seeking restitution for PFAS-related injury. Some plaintiffs and observers have questioned whether the maker of Scotch tape and inventor of Post-It notes can remain solvent due to all its liabilities.

3M is already planning to spin off one of its healthcare units in order to free up cash to deal with settlement costs. The general consensus is that the company has made solid headway in dealing with the litigation so far. MMM stock has lost 50% of its value over the past five years.

Nonfarm Payrolls, PCE data fill up end of week schedule

US Personal Consumption Expenditures (PCE) data for July arrives on Thursday, and the market is hoping a preferred drop in inflation will boost confidence in the Federal Reserve stalling rate hikes for the rest of the year. 

The market was already fairly certain that the central bank would keep interest rates stable at the September meeting, but as recently as early Tuesday, the majority believed a 25 basis point hike would arrive at the November meeting. Following the JOLTS data, however, the CME Group’s FedWatch Tool shows a 51% chance that rates remain unchanged in November as well. 

This was good news for markets and helped the Dow add 0.85% on Tuesday. The US Bureau of Economic Analysis’s Thursday release of PCE data should undergird the JOLTS data. Everyone knows the PCE is the Fed’s favorite gauge of inflation. It has an outsized role in determining the central bank’s policy. Wall Street expects 0.2% core growth in the price index compared with June and 4.2% on an annualized basis. That annual figure is slightly higher than June’s 4.1% figure.

On Friday, August Nonfarm Payrolls for the US could upend the situation if they arrive above the consensus 170K figure. June’s 187K print arrived below consensus and heartened the market. Earlier prints in the year showed a red-hot job market that threatened to force the Fed’s hand into continuing its rate hikes. A figure below 170K could lead to a rally for the Dow index since it would seem to express the market’s wish for a soft landing narrative.

What they said about the market – Rod von Lipsey

UBS Private Wealth Management strategist Rod von Lipsey warned investors earlier this week to move away from mega cap tech stocks that have already produced huge gains this year. Better options could be found in less sexy and often ignored sectors of the market, he added.

"For investors looking to put new money to work in the stock market, we prefer areas of the market that have lagged in performance so far this year, which includes sectors like energy and consumer staples.”