- The Dow Jones Industrial Average gained 11.8% over the previous five weeks, but sold off from Monday to Wednesday of this week.
- US jobless claims came in slightly below consensus.
- US Treasury yields fall in the front half of the curve, but rise in the back half.
- US Non-Farm Payrolls, Unemployment Rate and Average Hourly Earnings will mark US markets on Friday.
- The DJIA is now just a stone’s throw away from its all-time high at 36,952 in January 2022.
He Dow Jones Industrial Average (DJIA) index It looks like it could end its five-week winning streak this week, as the index fell for the first three sessions through Wednesday. The DJIA gained 0.17% on Thursday and would only achieve another weekly gain if it rallies strongly on Friday.
The S&P 500 and Nasdaq Composite rose 0.8% and 1.37%, respectively, on Thursday. The stock market benefited from the morning’s US jobless claims data, which showed fewer job losses than expected. Additionally, US Treasury yields are trading lower at the front of the yield curve.
The market is primarily focused on November nonfarm payrolls data due on Friday, along with unemployment rate and average hourly earnings reports for the same month.
Dow Jones News: US Initial Jobless Claims Up, But Below Forecasts
It was reported Thursday morning that initial jobless claims in the United States for the week ending December 1 stood at 220,000 claims. This figure is slightly higher than the 219,000 from the previous week, but lower than the 220,000 expected.
For their part, applications for continued unemployment benefits fell precipitously from the previously reported 1,925,000 to 1,861,000. This figure was notably lower than the consensus of 1,910,000.
Taken together, these reports show a labor market that is holding up despite the Federal Reserve’s (Fed) strategy of keeping interest rates “higher for longer.” Additionally, the data fuels the popular market narrative of a “soft landing.”
Inflation figures have generally trended downward throughout the year, but the rise in interest rates by central banks has not translated into large job losses, as some expected. Lower inflation coupled with a relatively healthy labor market is a recipe for an optimistic stock market, which is why equities trended higher on Thursday.
In contrast to the first two reports, the Challenger job cuts report was also released on Thursday morning. In November, corporate layoffs increased from 36,800 to 45,500, as previously reported.
Michigan Nonfarm Payrolls, Unemployment Rate and Consumer Sentiment Will Have Markets Relying on Friday’s Data
Friday is preparing to be an intense session in which great volatility is expected due to the publication of a series of economic indicators.
First and foremost is the November nonfarm payrolls report. The consensus points to 180,000 new hires in November, compared to 150,000 in October. Anything below 200,000 will likely excite equity traders, while anything above 200,000 will worry many. Right now, the market loves a weak NFP, but not too weak, as evidence showing the Fed that it’s okay to take the proverbial foot off the accelerator.
The November unemployment rate is expected to remain at 3.9%. A lower reading could also worry the market, as a tight labor market could push up wage inflation. In this sense, Average Hourly Earnings for November are expected to grow 0.3% compared to October and 4% compared to the previous year. October data shows growth of 0.2% month-on-month and 4.1% year-on-year.
Separately, the preliminary Michigan Consumer Sentiment Index for December will be released on Friday. The index is expected to rise from 61.3 to 62 as the holiday season has helped reinvigorate optimism.
Frequently Asked Questions About the Dow Jones
What is the Dow Jones?
The Dow Jones Industrial Average, one of the world’s oldest stock indices, is made up of the 30 most traded securities in the United States. The index is weighted by price rather than capitalization. It is calculated by adding the prices of the securities that comprise it and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, also founder of the Wall Street Journal. In recent years it has been criticized for not being sufficiently representative, as it only tracks 30 companies, unlike broader indices such as the S& P 500.
What factors influence the Dow Jones index?
There are many factors that drive the Dow Jones Industrial Average (DJIA). The main one is the aggregate performance of its component companies, revealed in quarterly corporate earnings reports. US and global macroeconomic data also contribute, influencing investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA, as it affects the cost of credit, on which many companies largely depend. Therefore, inflation can be a determining factor, as well as other parameters that influence the decisions of the Federal Reserve.
What is the Dow theory?
The Dow Theory is a method for identifying the main trend of the stock market developed by Charles Dow. A key step is to compare the direction 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. Volume is a confirmation criterion. The theory uses elements of maximum and minimum analysis. The Dow theory proposes three phases of the trend: accumulation, when the smart money begins to buy or sell; public participation, when the general public joins the trend; and distribution, when the smart money abandons the trend.
How can I trade with the DJIA?
There are several ways to trade the DJIA. One of them is to use ETFs that allow investors to trade the DJIA as a single security, instead of having to buy shares of the 30 companies that comprise it. A prominent example is the SPDR Dow Jones Industrial Average ETF (DIA). Futures contracts on the DJIA allow traders to speculate on the future value of the 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 allow investors to purchase a portion of a diversified portfolio of DJIA securities, providing exposure to the global index.
Dow Jones Industrial Average Forecast: The DJIA should finally take a break this week
The Dow Jones index consolidates this week after a rapid advance of 11.8% in the previous five weeks. It has been one of the index’s fastest corrections in decades, and traders should not be surprised if investors decide to take profits now.
A pullback to the August 1 range high at 35,679 should not worry the bulls, but a break below could. The 4-week simple moving average (SMA) is moving almost in line with that resistance point, so it wouldn’t be surprising if the index uses it as support this time.
However, much of the market is likely to want to hold on to its gains. This is because common wisdom says that it is not wise to sell when near all-time highs. 36,952, the all-time high of the first days of January 2022, invites the bulls to hold on.
The best bet for bulls is to set a price target at 37,750 and stick to it. This is the 161.8% Fibonacci (not pictured) based on the October low. Although the daily chart has been showing oversold readings lately, the weekly Relative Strength Index (RSI) is still in the low 60s and should probably allow for more upside in this rally.
Dow Jones Industrial Average Weekly Chart
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
