Dow Jones Industrial Average Forecast: DJIA loses long-term support ahead NVDA earnings, Jackson Hole
Aa
Share
- Dow Jones shed about half a percentage point on Tuesday.
- DJIA lost 2.21% last week and has now broken below trendline support from September 2022.
- Mortgage Bankers Association releases data showing contraction in mortgage applications.
- Nvidia earnings call in Wednesday post-market excites equity futures.
- Market still broadly in suspense ahead of Fed Chair Powell speech on Friday at Jackson Hole.
The Dow Jones Industrial Average (DJIA) has advanced 0.2% in Wednesday's first hour of Wall Street trading ahead of Nvidia’s (NVDA) heavily-anticipated earnings call in the post-market. Nvidia’s major beat-and-raise announcement back in May led to greater optimism among tech stocks, most of which rallied through July. The feeling is that outsized demand for Nvidia’s supply-constrained chips used in artificial intelligence applications could lead to another burst of energy.
Otherwise, the Dow Jones index has lost about 0.6% so far this week, following last week’s -2.21% performance. Broadly speaking, the market is poised for negative headlines coming from Federal Reserve Chair Jerome Powell’s speech on Friday morning at the Jackson Hole, Wyoming, central bank event. Pundits expect more “higher for longer” talk to weigh on sentiment.
At the time of writing in Monday’s premarket, Dow Jones, S&P 500 and NASDAQ 100 futures have all advanced close to 0.2%.
Dow Jones News: Powell speech at Jackson Hole remains focus
Arriving in the middle of the three-day Jackson Hole event that runs from Thursday through Saturday, Fed Chair Powell’s speech remains the primary focal point of the week. Powell and other Fed governors seem to have finally gotten through to 2023’s buoyant equity markets that elevated interest rates will last into 2024. This is the whole “higher for longer” schtick that everyone keeps muttering about.
The market spent the first half of this year ignoring Powell and company by expecting that the central bank would cut rates toward the end of the year. But Powell raised the fed funds rate by 25 basis points in July and said he was open to further hikes, albeit while striking a considerably more dovish tone. The CME Group’s closely watched FedWatch Tool puts the odds of a September rate hike at less than 14% and a November hike at less than 37%.
Goldman Sachs strategists released a client note earlier this month, predicting that the central bank would not begin trimming rates until the second quarter of 2024. That means a rate-cutting environment would not be on the table for about nine more months, and this realization has finally begun to sober up markets. The Dow Jones is already down 3.57% in August, the largest monthly drop since February.
If Powell suggests that another rate hike is needed before the year is out, then expect the Dow and other indices to experience a steep sell-off on Friday.
Housing stats show signs of weakness
Early on Wednesday the Mortgage Bankers Association (MBA) released its weekly Mortgage Applications data with a reading of -4.2%. This is the fifth week in a row that the data has been negative, and this week’s print was much worse than last week’s -0.8%.
It would seem that 30-year mortgage rates that have climbed above 7% in the US market are having a severe impact on lending and demand for housing. On Tuesday, Existing Home Sales data in the US showed a 2.2% decline in July. This reading followed the 3.3% decrease recorded in June.
The housing market in the US is keenly watched as a proxy for the overall economy, and at least some institutional investors may be getting cold feet as they watch the mortgage market begin to stall.
Economic indicators that may also color the Fed Chair’s speech are Wednesday’s S&P Global Manufacturing and Services PMIs (Purchasing Managers’ Index) – which arrive after the opening bell – and Thursday’s Durable Goods Orders. Market consensus has the August Manufacturing PMI improving 40 basis points to 49.4 and the Services PMI remaining flat at 52.3. July Durable Goods Orders are expected to arrive at -4% compared with June’s 4.6%.
What they said about the market – Chris Harvey
Wells Fargo’s Chris Harvey says the top 10 largest stocks in the market are likely the best place to be right now. This is because they are poised for further upside but could also be seen as safe havens if the market goes south. These stocks include: Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Nvidia (NVDA), Berkshire Hathaway (BRK.B), Meta Platforms (META), Tesla (TSLA), UnitedHealth (UNH) and Johnson & Johnson (JNJ).
"The group has a unique potential payout structure. The stocks should do well during periods of economic uncertainty due to their growth, risk, and balance sheet attributes. But if there is a 'melt up' into year-end, the group probably catalyzes the rally due to its index weight."
Dow Jones Industrial Average forecast
The Dow Jones index broke through the bottom trendline of an ascending triangle formation that began at the end of September 2022. That means this trend worked for nearly all of the past 11 months. Important to note, however, is that the index actually briefly broke through the trendline back at the end of May of this year.
Still, breaking below that significant trendline should give investors pause. It could signify a further deterioration that leads the DJIA down to support at 33,700 – a mere 1.7% drawdown. Just as well, it’s possible that the 34,250 prior resistance level reinforces the index.
However, a more sober reading of the tea leaves might predict a much more serious drop to the 32,500 to 32,800 range. The Relative Strength Index (RSI) has descended to a level (36) not seen since March, and a retouching of oversold levels (30 and below) may be in the cards.
Dow Jones Industrial Average daily chart
