- Dow Jones bounces up as soft US services data eases concerns about a “higher for longer” monetary policy outlook.
- US Services activity softened against expectations in March with the Prices Paid sub-index posting its lowest reading in years.
- Intel is leading losses in the Dow Jones after news of hefty losses in its foundry business.
The Dow Jones Industrial Average (DJIA) has moved into positive territory following a weak opening. The soft US services activity data has offered some relief to investors, increasingly concerned that a string of strong US macroeconomic releases would force the Fed to dial down their monetary easing plans.
The US ISM Services PMI eased to 51.4 in March from 52.6 in February against market expectations of a slight increase to 52.7. Beyond that, the Prices Paid sub-index retreated to 53.4 from 58.6 in the previous month. This is the lowest reading in years and suggests a disinflationary contribution to the economy. These figures have offset the impact of strong ADP employment figures and the hawkish comments by Fed Chair Powel and Atlanta Fed President, Bostic.
All three main Wall Street Indexes have jumped after the data. The Dow Jones is lagging with a 0.1% advance, trading at 39,214, still well below the 40,000 high hit last week. The NASDAQ is leading gains with a 0.53% advance to 16,326, followed by the S&P 500, up 0.37% to 5,225.
Dow Jones news
The Industrials sector is the best performer with a 0.75% advance followed by materials, which adds 0.66% on Wednesday. On the losing end, only two of the eleven sectors are in the red with Consumer Staples losing 0.95% followed by the Utilities, down 0.1%.
Down to single stocks, the market is showing a more mixed picture. Intel (INTC) fell 7% to $40.78 hammered by a report stating that its foundry business recorded an operating loss of $7 billion in 2023.
Next is Procter & Gamble (PG), down 2.36% to $156.81, and Johnson & Johnson (JNJ), losing 1.6% to $155.19.
On the positive side, Caterpillar (CAT) advances 2.3% to $373.252, followed by Amazon (AMZN), which is 1.07% up at $182.63.
Dow Jones technical outlook
The technical picture is little changed from Tuesday, with the Dow Jones Index correcting lower, yet with the broader bullish trend still intact. Price Action remains contained between the 50% and the 61.8% Fibonacci retracement of the March rally, at 39,300, with bears in control after the rejection at the 40,000 psychological level last week.
The 39,000 support area is holding sellers for now and closing the path to the trendline support, now at 38,850. On the upside, the index is struggling to breach the mentioned 50% Fibonacci retracement at 39,195. Further up at 39,457 and the mentioned 40,000 would be the next targets.
Dow Jones 4-Hour Chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.