- The Dow Jones fell 700 points on Friday after non-farm payrolls numbers rose in December.
- Market bets on a Fed rate cut have fallen, with price traders now anticipating one rate cut this year.
- Consumer sentiment and inflation expectations also rose, further impacting risk appetite.
The Dow Jones Industrial Average (DJIA) took a hit on Friday after investor sentiment deteriorated on the back of the Non-Farm Payrolls (NFP) report, which showed a much higher hiring rate than most investors expected. Results of the University of Michigan (UoM) consumer survey also showed that the average American spender expects more inflation rather than less over the next five years, further dampening risk appetite in stocks as strong job growth and rising consumer inflation expectations bode well. Bad for more Fed. Federal Reserve Bank) interest rate cuts.
US net non-farm payrolls additions in December rose to 256K, much higher than the expected 160K, while November’s reading saw a slight downward revision to 212K. The University of Michigan Consumer Confidence Index fell to 73.2 in January, down from 74.0 the previous month, a sharper decline than expected at 73.8. The University of Malta’s five-year consumer inflation forecast also rose to 3.3%, a notable rise from the previous reading of 3.0%.
Markets are broadly pivoting away from expectations of a Fed rate cut in 2025 and a dumping on stocks as traders pile into the safe-haven US dollar. Major institutions like Bank of America (BAC) and Goldman Sachs (GS) are putting out research notes after the Non-Farm Payrolls (NFP) report that widely acknowledge that everyone now expects fewer interest rate cuts from the Fed in 2025 than in the past. According to the Chicago Mercantile Exchange’s FedWatch tool, that sentiment is being picked up by interest rate traders as well: Markets are pricing in just one 25 basis point rate cut this year, and not until June at the earliest.
Dow Jones News
The Dow Jones was broadly lower on Friday with fewer than a dozen stocks able to find room in the green to close out the trading week. The losses were led by Travelers Inc. (TRV), which fell 4.3% on the day, to $232 per share. It was followed by Goldman Sachs, which fell 3.5% and fell below $560 a share for the first time in about a month.
Dow Jones price forecast
The glut that occurred after Friday’s non-farm payrolls report pushed the Dow Jones Index to within striking distance of the 200-day Exponential Moving Average (EMA) near 41,160. The Dow Jones Industrial Average is poised to close below 42,000 points for the first time since early November, and the main stock index is down more than 7% from its record high of 45,065 points set in December.
The continued decline in the Dow Jones is sure to raise new fears of an extended decline. However, the price action remains north of the last major swing low, which was also supported by the 41,600 level. Despite a poor performance in December and more of the same so far in January, the Dow Jones is coming off a stellar bull run that has seen the DJIA add nearly 20% from base to peak through 2024.
Dow Jones daily chart
Dow Jones FAQs
The Dow Jones Industrial Average is one of the oldest stock market indices in the world, consisting of the 30 most actively traded stocks in the United States. The index is price-weighted and not market capitalization-weighted. It is calculated by summing the component stock prices and dividing them by a factor that currently amounts to 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years, it was criticized for not being broadly representative enough because it tracks only 30 conglomerates, unlike broader indices such as the S&P 500.
There are many different factors that drive the Dow Jones Industrial Average (DJIA). The overall performance of the constituent companies disclosed in the company’s quarterly earnings reports is the headline performance. US and global macroeconomic data also contribute to its impact on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also affects the Dow Jones Industrial Average because it affects the cost of credit, on which many companies rely heavily. Therefore, inflation can be a key driver along with other metrics that influence the Fed’s decisions.
Dow Theory is a method of determining the fundamental trend of the stock market developed by Charles Dow. The basic step is to compare the trend 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. Size is a confirmatory criterion. The theory uses elements of peak and trough analysis. Dow Theory postulates three phases of a trend: accumulation, when smart money starts buying or selling; Public participation, when the wider public joins in; And distribution, when the smart money comes out.
There are a number of ways to trade the DJIA. The first is the use of ETFs that allow investors to trade the Dow Jones Industrial Average as a single security, rather than having to buy shares in all 30 component companies. A leading example of this is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures allow traders to speculate on the future value of an 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 purchase a share of a diversified portfolio of DJIA stocks and thus provide exposure to the overall index.