Dow Jones forecast update: The Dow outperformed global indices with a gain of 1.55% on Friday and is one that could shine brightly in the week ahead. The Nasdaq could be the more volatile index given that several other companies in the “Magnificent 7” group of tech stocks are due to report their results. We will also have some top-tier economic data and central banks meetings to look forward to, including the FOMC rate decision and the latest nonfarm payrolls report.
Friday’s gains came after a volatile week for the major indices after weaker earnings from Tesla and Alphabet hurt the technology sector, leading to some rotation into sectors that tend to do well by Fed-friendly data, with small-caps surging on bets lower interest rates would ease the burden on them with their relatively higher debt loads than the medium and large cap group of stocks. We also saw financial perform well, along with industrials and stables.
Dow Jones Forecast: Key Events This Week
In the previous week, at least two gauges of inflation came in weaker or in line with expectations, raising speculation the Fed will cut rates in September. In the week ahead, we will hear from the Fed and its chairman Powell, and we will have lots of key economic data and company earnings to look forward to.
FOMC Policy Decision - Wednesday, July 31
This week's Dow Jones forecast hinges significantly on the FOMC policy decision. Recent US economic data has shown signs of weakness, prompting many analysts to advocate for expedited rate cuts by the Federal Reserve. The sharp steepening of the U.S. yield curve suggests the market is already anticipating more aggressive cuts. Currently, the probability of a rate cut at this meeting stands at a mere 10%. However, any unexpected move by the Fed could substantially boost stock prices. The more plausible scenario is that the Fed will signal a September rate cut, with a possible follow-up later in the year. If the Fed adopts a dovish stance, it could further lift stock markets. Conversely, a hawkish approach might trigger another round of selling, particularly in growth stocks and small-cap sectors.
US Non-Farm Jobs Report - Friday, August 2
The Dow Jones forecast will also be influenced by the upcoming US non-farm jobs report, among other macro factors in the week ahead. The unemployment rate has been on the rise, and job growth has decelerated, with various labour market indicators softening recently. If this trend persists, it will likely reinforce expectations for a September rate cut, potentially weakening the dollar and supporting stock prices, provided the report doesn't signal severe economic weakness that could stoke recession fears.
“Magnificent Seven” Earnings – all week
After disappointing results from Alphabet and Tesla, we will hear from 4 more of the “Magnificent 7” group of tech companies who are due to report their results in the week ahead. These include Meta Platforms, Microsoft, Amazon and Apple. You can read more on them in our “Magnificent Seven” Q2 2024 Earnings Preview by my colleague Matt Weller.
Dow Jones Technical Analysis
Source: TradingView.com
After its breakout above the 40K handle a couple of weeks ago, the Dow Jones went on to rise sharply, by a further 1380+ points, before dropping sharply in the last two days of that week and much of the previous weeks, before bouncing back on Thursday and more so on Friday. As a result, the Dow is now back above that 40K level and its 21-day exponential moving average and a bullish trend line.
So, the path of least resistance on the Dow remains to the upside after an eventful last week.
Now that it has broken back above key resistance and a psychological hurdle of 40K, this area is going to be the most important support on any further dips in the week ahead with interim support now coming at Thursday’s high of 40440.
On the upside, this month’s high so far of 41381 is the main target, where we also have the 161.8% Fibonacci extension level of the mini downswing that took place in May.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
