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DJIA moves higher, but weekly streak set to end – Crypto News

Published

2 years ago

December 8, 2023

Dripp

Dow Jones Industrial Index gained 11.8% over the previous five weeks but sold off from Monday through Wednesday of this week.
US Jobless Claims arrived slightly below consensus on Wednesday.
US Treasury yields are falling in the front half of the curve but rising in the back half.
US Nonfarm Payrolls, Unemployment Rate and Average Hourly Earnings data will hold sway over US markets on Friday.
DJIA is now in spitting distance of all-time high at 36,952 from January 2022.

The Dow Jones Industrial Average (DJIA) looks like it might end its five-week streak of gains this week as the index drifted lower during the first three sessions this week. The DJIA has gained 0.2% on Thursday but not enough for confidence.

The S&P 500 and NASDAQ Composite, on the other hand, have risen 0.8% and 1.3%, respectively, at the time of writing. The stock market is benefiting from US Jobless Claims data that showed fewer job losses than expected. Additionally, US Treasury yields are largely trading lower, an event that typically helps stock prices.

The market is primarily focused on November Nonfarm Payrolls data that will be released on Friday, alongside Unemployment Rate and Average Hourly Earnings reports for the same month.

Dow Jones News: US Initial Jobless Claims tick higher but below forecast

US Initial Jobless Claims for the week ending December 1 were reported on Thursday morning at 220K. This was slightly higher than the 219K reported the previous week but below the 220K forecast.

Continuing Jobless Claims dropped precipitously from the previous report of 1.925 million to 1.861 million as well. This figure was noticeably lower than the 1.91 million consensus.

Taken together, these reports show a labor market holding up in spite of the Federal Reserve (Fed) strategy of holding interest rates “higher for longer”. Additionally, the data is more fodder for the market’s popular narrative of a “soft landing”.

For the most part, inflation readings have been trending lower all year, but the central bank’s higher interest rate environment has not translated into major job losses as some had expected. Lower inflation alongside a relatively healthy labor market is a recipe for an optimistic stock market, and that is why equities are trending higher on Thursday.

Contrasting with the first two reports was the Challenger Job Cuts report, which also was released Thursday morning. It showed corporate layoffs in November jumping from the 36.8K reported previously to 45.5K.

Nonfarm Payrolls, Unemployment Rate, Michigan Consumer Sentiment make market data-dependent on Friday

Friday is gearing up to be a heavy session that should see plenty of volatility based on the release of a slew of economic indicators.

First up and most important is the November Nonfarm Payrolls report. Consensus calls for 180K new hires in November, up from 150K in October. Anything below 200K will likely excite equity traders, while a figure above 200K will worry many. Weaker but not too weak NFPs are fawned over by the market at this time as evidence that demonstrates to the Fed that it’s okay to pull the proverbial foot off the gas pedal.

The Unemployment Rate in November is expected to sit still at 3.9%. A lower reading might also worry the market as a tight labor market stands to push up wage inflation. On that note, Average Hourly Earnings for November are expected to grow by 0.3% from October and 4% from a year earlier. This compares to October data showing 0.2% MoM growth and 4.1% annually.

In addition, the preliminary Michigan Consumer Sentiment Index for December will see the light of day on Friday. The index is expected to show a rise from 61.3 to 62 as the holiday season acts to reinvigorate optimism.

S&P 500 FAQs

The S&P 500 is a widely followed stock price index which measures the performance of 500 publicly owned companies, and is seen as a broad measure of the US stock market. Each company’s influence on the computation of the index is weighted based on market capitalization. This is calculated by multiplying the number of publicly traded shares of the company by the share price. The S&P 500 index has achieved impressive returns – $1.00 invested in 1970 would have yielded a return of almost $192.00 in 2022. The average annual return since its inception in 1957 has been 11.9%.

Companies are selected by committee, unlike some other indexes where they are included based on set rules. Still, they must meet certain eligibility criteria, the most important of which is market capitalization, which must be greater than or equal to $12.7 billion. Other criteria include liquidity, domicile, public float, sector, financial viability, length of time publicly traded, and representation of the industries in the economy of the United States. The nine largest companies in the index account for 27.8% of the market capitalization of the index.

There are a number of ways to trade the S&P 500. Most retail brokers and spread betting platforms allow traders to use Contracts for Difference (CFD) to place bets on the direction of the price. In addition, that can buy into Index, Mutual and Exchange Traded Funds (ETF) that track the price of the S&P 500. The most liquid of the ETFs is State Street Corporation’s SPY. The Chicago Mercantile Exchange (CME) offers futures contracts in the index and the Chicago Board of Options (CMOE) offers options as well as ETFs, inverse ETFs and leveraged ETFs.

Many different factors drive the S&P 500 but mainly it is the aggregate performance of the component companies revealed in their quarterly and annual company earnings reports. US and global macroeconomic data also contributes as it impacts on investor sentiment, which if positive drives gains. The level of interest rates, set by the Federal Reserve (Fed), also influences the S&P 500 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 Jones Industrial Average forecast: DJIA should finally take a breather this week

The Dow Jones index is consolidating this week after a brisk 11.8% advance over the previous five weeks. This was one of the quickest index 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 bulls, but a break below it may do so. The 4-week Simple Moving Average (SMA) is moving nearly in line with that resistance point, so it would be unsurprising if the index uses it for support this time around.

Much of the market probably wants to hold onto its gains however. This is because common wisdom says that it’s unwise to sell as you near all-time highs. 36,952, the all-time high from the first days of trading in January 2022, beckons bulls to hold on.

The best bet for bulls is to furnish a price target of 37,750 and stick to it. This is the 161.8% Fibonacci level (not pictured) based on the October low. While the daily chart has been showing oversold readings lately, the weekly chart’s Relative Strength Index (RSI) still sits in the low 60s and should probably allow for more upside in this rally.

Dow Jones Industrial Average weekly chart