Dow Jones Industrial Average takes a beating on strong US inflation data

Wall Street indexes plunge as US inflation dampens hopes of Fed rate cuts in June.
All sectors are trading lower with Real Estate and Utilities the most affected.
The Dow Jones Index is under increasing bearish pressure below 38,540 with scope to retest 38,035 area.

Equity markets are taking a blow on Wednesday as an unexpectedly strong US inflation report has hammered hopes that the Federal Reserve (Fed) may start lowering borrowing costs in the near term.

US Consumer Prices Index (CPI) accelerated at a 0.4% pace in March, against expectations of a slowdown to 0.3%, while the yearly rate increased to 3.5% from 3.2% in the previous month. These numbers confirm that price pressures remain stubbornly high and ditch the market’s roadmap of three rate cuts in 2024, starting in June. Later on Wednesday the minutes of the Fed’s latest meeting reflect decreasing confidence among policymakers that inflation is trending sustainably towards the 2% target.

The risk-averse reaction to CPI data has sent the main US indices tumbling. The Dow Jones leads losses, down 1.210% to 38,455, increasing its distance from March highs near 40,000. The S&P 500 and the NASDAQ index drop 0.9% each to 5,162 and 16,162, respectively.

Dow Jones news

Almost all the Wall Street sectors are posting losses on Wednesday. Real Estate is the most affected by higher-for-longer interest rates and falls 4.24%, followed by Utilities, down 1.7%, and Materials, which gives away 1.5%. Only the Energy sector is trading above opening levels with a 0.5% advance.

Intel (INTL) is leading losses with a 3.20% drop to $37.05, followed by Home Depot (HD), 3.15% lower to $350.09, and Boeing (BA), which is losing 2.45% to $173.70. On the winning side, Walmart (WMT) is 1% up to $60.38, followed by Chevron (CVX) with a 0.24% advance to $162.40.

Dow Jones technical outlook

The Dow Jones index is on track to print a strong bearish candle on the daily chart, confirming the negative trend from the March top, right below 40,000.

The strong reaction to the US inflation data has pushed the Index below the 38,540 support level, with the bearish cross between the 4-hour 50 and 100 Simple Moving Averages (SMAs) giving hope to bears. Below here, the next target is 38,033.

The previous support at the mentioned 38,540 is likely to offer some resistance, and above there, an order block, right below 39,000, will challenge a potential bullish attempt.

Dow Jones Index 4-Hour Chart

Dow Jones FAQs

The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.

Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on 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 corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.

Dow Theory is a method for identifying the primary 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 confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.

There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable 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 enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.