Dow Jones Industrial Average falls 550 points on fresh downturn concerns

• Dow Jones tumbled after a misfire in US PMI activity figures on Thursday.
• Concerns of a steepening economic downturn crimped risk appetite.
• Markets struggling to balance hope for rate cuts with economic realities.

The Dow Jones Industrial Average (DJIA) tumbled 550 points on Thursday after worsening economic activity figures reminded markets of the very real risk that a downturn in the US economy could tip into a hard landing scenario. Near-term gains sparked by rising hopes for interest rate cuts were wiped out as investors struggle to balance their hopes for soft data to spark a new rate cutting cycle from the Federal Reserve (Fed) and the fact that those same soft figures could spark a full-blown recession, rendering rate cuts a moot point.

US Initial Jobless Claims for the week ended July 26 rose to 249K from the previous week’s 235K, lurching past the forecast uptick to 236K. July’s US ISM Manufacturing Purchasing Managers Index (PMI) tumbled to an eight-month low of 46.8 compared to the previous 48.5 and entirely reversing the forecast move up to 48.8.

On the other side of the same coin, ISM Manufacturing Prices Paid in July accelerated to 52.9 versus the previous 52.9 compared to the forecast 48.8 as input prices for manufacturers continue to drift higher than markets anticipated even as activity declines.

Friday’s US Nonfarm Payrolls (NFP) will be a key data point for markets to wrap up the trading week. July’s NFP labor print is expected to ease to 175K from the previous 206K, and Average Hourly Earnings are expected to hold steady at 0.3% MoM. 

Markets are struggling to balance on the edge of a very sharp knife as a downturn in economic figures is helping to pin rate cut expectations even further into the ceiling. According to the CME’s FedWatch Tool, rate traders are pricing in 100% odds of at least a quarter-point rate cut from the Fed on September 18, with further one-in-five odds of a double-cut for 50 basis points. On the downside, too much of a downturn will obliterate market sentiment as a hard landing economic scenario for the US economy makes any rate cuts from the Fed irrelevant, and investors are strung along a difficult middle ground where they hope for rate cuts on soft data, but not so soft that the US economy rolls over.

Dow Jones news

Four-fifths of the securities listed on the Dow Jones equity index are in the red on Thursday as investor sentiment sours. Boeing Co. (BA) tumbled -5.8% and fell below $180.00 per share on the day, extending Wednesday’s declines after the aviation company reported a net loss $1.4 billion in the second quarter, and the in-turmoil plane builder is struggling to find its feet after named a new CEO to helm the floundering company whose books are buckling under the weight of half a decade of financial losses.

Dow Jones technical outlook

The Dow Jones is struggling to find a foothold amid steep selling pressure on Thursday, falling from 41,080.00 to 40,200.00, declining -2.56% peak-to-trough from Wednesday’s late peak near 41,200.00 and shedding around 700 points from top to bottom.

Despite near-term downside pressure, the major equity index is still trading deep in bull country, holding north of the 50-day Exponential Moving Average (EMA) at 39,682.22. The Dow Jones has traded above the 200-day EMA in a no-touch extended rally since crossing above the long-term average in November of last year.

Dow Jones daily chart