DJIA performs better than NASDAQ Wednesday as Cisco earnings await – Crypto News – Crypto News
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Dow outperforms S&P 500, NASDAQ at start of Friday trading Dow outperforms S&P 500, NASDAQ at start of Friday trading

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DJIA performs better than NASDAQ Wednesday as Cisco earnings await – Crypto News

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  • Dow Jones Industrial Index benefits with the rest of the market from lower inflation readings.
  • Producer Price Index for October fell half a percentage point on a monthly basis.
  • Retails Sales for October declined slightly from the previous month.
  • Following a positive earnings result from The Home Depot, Dow investors wait on Cisco, Walmart results.

 

The Dow Jones Industrial Average (DJIA) is advancing for its fourth straight session on Wednesday as the market cheers on October releases from the Producer Price Index (PPI) and US Retail Sales. Both economic indicators added to Tuesday’s belief that the economy is steadily melting down into the much-heralded “soft landing” scenario in which inflation subsides without a harsh effect on consumer spending and employment.

The DJIA has advanced about 2% this week through Wednesday, and the index has gained about 0.6% at the time of writing on hump day. The S&P 500 and NASDAQ Composite are advancing as well, but both indices are up about half that of the Dow.

The US House of Representatives passed a bipartisan stop-gap measure that will continue funding the Federal government at present levels for a few more months, and this political event has removed yet another worry spot for the markets through the end of the year. 

The Home Depot (HD) reported a positive quarter earlier this week, so the fundamentals of the DJIA seem to be on better footing. Cisco Systems (CSCO) earnings will be released after Wednesday’s market close, and Walmart (WMT) earnings should direct the index on Thursday.

Dow Jones News: With inflation receding, the Fed may cut rates sooner than expected

Although Monday saw gains continue from the prior week, Tuesday’s Consumer Price Index (CPI) release for October was the initial starting gun for this week’s rally. Headline CPI showed inflation was flat between September and October, which beat economists’ prediction and was much lower than the September print.

The DJIA closed up more than 1.4% on Tuesday due to this indicator alone as trader’s pulled forward their expectation for next year’s Federal Reserve rate cutting target to earlier on the calendar. Traders now give a 26% chance that the central bank begins cutting interest rates in March, according to the CME FedWatch Tool. For the May meeting, a majority (58%) of the market expects the fed funds rate to be either 25 or 50 basis points below the current 5.25% to 5.5% range.

Tuesday’s CPI reading was lent even more credibility on Wednesday, when the PPI scaled back by half a percentage point in October. The PPI shows production prices in the US economy, and lower energy prices contributed to a pullback in manufacturing costs this time around.

On Wednesday, US Retail Sales for October dipped 0.1% on a monthly basis rather than the 0.3% that was consensus. This reading ushers in further proof that the economy may be cooling off in light of high interest rates but is not in danger of a severe downturn. The soft landing was once laughed at but is now the state religion on Wall Street.

Home Depot signals positive signs for Cisco, Walmart

The Home Depot is one of America’s premier retailers for the construction and home renovation sphere. As such, it becomes a proxy for how the US consumer is doing. Tuesday’s Q3 results were a parable for the US economy experiencing the so-called soft landing thesis.

The Home Depot bested Wall Street consensus on the top and bottom lines despite lots of negatives among the details. Consumers are choosing smaller home renovation projects as average customer ticket spending fell from a year ago. Comparable sales also fell 3.5% YoY.

However, The Home Depot is not experiencing a major pullback in revenue but more of a lull in action. Nothing in the results shows that US consumers are all that pressured, and management said that revenue in the current fiscal year would decline just 3% or 4%.

The Home Depot rallied on the earnings results, which sets things up nicely for two other Dow components – Walmart and Cisco Systems.

Walmart is a major retailer like The Home Depot, just in a different category. On the back of Wednesday’s Target (TGT) earnings hoopla – TGT stock rallied 17% – prospects for Walmart are also looking up. The company is expected to grow revenue about $7 billion from a year ago and increase per share earnings marginally. 

Cisco earnings come after the close on Wednesday. Lots of the focus is on the networking hardware company’s attempt to acquire cybersecurity firm Splunk. However, analysts still expect Cisco to grow sales more than 7% from a year ago despite the tough macro situation for hardware producers.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

What they said about the market – David Kostin

Goldman Sachs equity strategist David Kostin says 2024 may not be a banner year for the stock market as the S&P 500 has already rallied 17% in 2023. In an investor note on Wednesday, Kostin said he expects the index to end 2024 just 5% higher than the current level at 4,700. Kostin says the market is pricing stocks correctly at the moment, owing to consensus around 2024 US GDP growing at 2.1%.

“Our macro forecasts imply a benign outcome for equities, but the current starting point will limit the potential appreciation for the benchmark US equity index in 2024.”

Dow Jones Industrial Average forecast: Reason for optimism

Two weeks ago, the Dow Jones index broke out of its descending topline, and it hasn’t stopped since. The primary reason to trust in the current rally is that the DJIA basically gapped up through the 34,300 to 34,700 consolidation zone in just two sessions.

Now the DJIA is hovering just below the 35,000 resistance point. This level held bulls at bay back in late August and mid-December. A break here will give the market a free shot at the 2023 high of 35,679 from August 1. A pullback could push the index back to support near 34,700.

Dow Jones Industrial Average daily chart

 

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