Dow Jones Industrial Average revives bulls on Thursday

• The Dow Jones rallied to recover recently-lost ground on Thursday.
• Equities are broadly higher as investors focus on good-bad news.
• Rate markets second-guess their stance on a Fed rate cut, but only slightly.

The Dow Jones Industrial Average (DJIA) rallied on Thursday after headline US Gross Domestic Product (GDP) figures lurched higher, crimping rate market odds of a September rate cut. However, a mixed outlook in the underlying GDP figures and a sharp contraction in US Durable Goods Orders has overall risk appetite pinned firmly in the high end as investors continue to hinge entirely on softening data to help bully the Federal Reserve (Fed) into a fresh rate-cutting cycle.

Annualized quarterly GDP surged to 2.8% in the second quarter, well above the forecast 2.0% and piling onto the previous quarter’s 1.4%. The firm upswing in US headline GDP growth over the first half of 2024 made rate traders blink, and rate traders have backed away from sky-high hopes of a first rate cut in September. Despite the easing in rate cut expectations, odds of an upcoming rate slash in the third quarter are still affixed firmly on the high side: according to the CME’s FedWatch Tool, rate markets briefly priced in only 85% odds of at least a quarter-point rate cut on September 18 before investors took a second look at US data figures and re-pinned rate cut odds at 100%.

Looking at the underlying data that made up the US’ Thursday data dump, there was more to US GDP figures in the second quarter than meets the eye. A wide uptick in government spending at the federal and state levels made up a large chunk of the gains in Q2 GDP growth, and a significant amount of spending-as-growth were large gains in shelter spending and healthcare costs, two categories that US consumers have no choice but to shell out for price increases with little middle ground for spending negotiations. Between government spending, rents, and medical costs, the three categories accounted for roughly 80% of the gains in GDP growth.

US Durable Goods Orders contracted sharply in June, printing a -6.6% decline compared to the forecast 0.3% and the previous month’s 0.1% uptick. It is the worst Durable Goods Orders report since February, and every Durable Goods Orders print has been revised lower since April 2023’s report. 2024’s cumulative Durable Goods Orders are down over ten percent year-to-date, and further declines are expected as downward revisions continue.

Markets will now be pivoting to Friday’s Personal Consumption Expenditure Price Index (PCE) inflation to help put the nail in the coffin for the week’s data schedule. Investors are broadly hoping for another downtick in US PCE inflation, with median market forecasts calling for a 2.5% YoY print in core PCE inflation compared to the previous print of 2.6%.

Dow Jones news

The Dow Jones climbed around 400 points on Thursday before settling back to a healthy 200-point gain, gaining over nine-tenths of one percent and clambering back over the 40,000.00 major price handle as stocks pile back into risk-on bets after the previous day’s sharp decline that saw the Dow Jones shed around 500 points in a single day.

Over two-thirds of the Dow Jones index is in the green on Thursday, led by investors piling back into tech darlings like International Business Machines Corp. (IBM) and Salesforce Inc. (CRM). IBM rallied after reporting higher-than-expected AI bookings as major tech companies continue to sell shovels and pickaxes in the AI gold rush. IBM is up nearly 6% on Thursday, trading into $195.00 dollars per share. CRM rose nearly 4.5% to cross over $260.00 per share as the AI trade continues to capture investor attention.

Dow Jones technical outlook

The Dow Jones rallied in a bid to recapture lost ground on Thursday, adding back over 350 points on the day and recovering a large chunk of Wednesday’s 500-point decline. The DJIA is back over the 40,000.00 mega handle, testing the waters near 40,200.00.

Despite the day’s recovery, the Dow Jones is still at the low side of a deep pullback from record highs set last week at 41,371.38. Long-tern, the DJIA is trading just fine, chewing through chart paper well above the 200-day Exponential Moving Average (EMA) at 37,950.00.

Dow Jones five-minute chart

Dow Jones daily chart