- The Dow Jones is taking a breather as bids hold just above 44,000.
- Post-election rally pauses, but with little retracement on the cards.
- US CPI inflation data due Wednesday to drive momentum.
The Dow Jones Industrial Average shed a scant 200 points on Tuesday, marking out territory just north of the 44,000 handle as equities take a brief pause from the post-election rally that sent the Dow Jones into fresh record highs. The major equity index surged above 44,000 last week after former President Donald Trump appeared to sweep to a stunning election win, sending investors into a frenzy as they bought whatever they could find.
Now that the Dow Jones is up over 18% in 2024 alone, the post-election glut is taking a pause as investors weigh wether or not equities are encroaching on oversold territory. The DJIA is on pace to chalk in its strongest month since November of last year, when the equity board added nearly 9% in a four-week period. The Dow Jones is now up over 5.5% this November, and one-sided equity traders are taking a breather as US Consumer Price Index (CPI) inflation figures loom around the corner.
US CPI inflation figures for the month of October are slated to release on Wednesday, and markets are expecting a rebound in annualized headline consumer price growth. Full-fat CPI inflation is forecast to tick higher to 2.6% YoY compared to September’s print of 2.4%. Core CPI inflation is expected to hold steady at 3.3% YoY. The monthly figure for both inflation categories are broadly expected to hold flat month-on-month.
Dow Jones news
Tuesday’s pause in the broad-market rally has roughly two-thirds of the Dow Jones testing into the red on the day. Losses were led by 3M (MMM) and Boeing (BA), each falling a little under 3% from the day’s opening prices. 3M eased below $130 per share, while Boeing slipped back underneath $145 per share.
On the high side, Honeywell International (HON) rose nearly 3% and climbed over $231.50 per share. This week, it was revealed that activist investment holdings firm Elliott Management has taken a significant stake in Honeywell, bolstering market confidence in the tech company’s outlook.
Elliott Management has submitted a letter to Honeywell’s board proposing a major restructuring of the company. They suggest that Honeywell should split into two independent entities. Elliott believes that this separation could increase Honeywell’s share price by 51% to 75% over the next two years.
Dow Jones price forecast
Thin losses on Tuesday have crimped the Dow Jones’ mostly one-sided November chart action, though the major equity index is still holding onto bullish territory north of 44,000. Early November sparked a bullish extension after price action gave a clean bounce off of the 50-day Exponential Moving Average (EMA) back when bids and the key moving average mixed near the 42,000 handle.
Dow Jones daily chart
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.
Source: https://www.fxstreet.com/news/dow-jones-industrial-average-trims-gains-on-tuesday-202411121701