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  • US Treasury yields fall at front end of curve after poor auction results.
  • S&P Global Manufacturing and Services PMIs for January surprise to upside.
  • Dow Jones Industrial Average awaits Friday’s PCE inflation data to drive direction.
  • Visa, Intel and American Express are still on the earnings docket.

 

Dow Jones component IBM (IBM) beat earnings and revenue consensus for the quarter ending in December, and the news of it sent the legacy tech firm surging more than 8% late Wednesday. That might turn the tables on Thursday since Dow futures are rising, while NASDAQ is falling behind due to a big earnings miss by Tesla (TSLA).

The Dow Jones Industrial Average (DJIA) traded lower for its second day in a row on Wednesday despite rallying higher for much of the session. An afternoon US Treasury auction for 5-year notes disappointed the market as the previous auction for that tenure went off at a yield of 3.801%, but low demand on Wednesday for the $61 billion in government debt meant the auction reached 4.055%. This led the morning’s lower trending yield curve to revert to gains in the afternoon, which dented the equity rally.

The market started out the day optimistically after a survey of the US manufacturing and service sectors outperformed to a great extent, showing that both parts of the US economy are in expansion.

The rest of the week will rely to a great extent on earnings from several Dow Jones components, as well as Friday’s inflation snapshot from the Personal Consumption Expenditures (PCE) report.

Dow Jones News: PMIs get slighted by weak Treasury demand, DJIA to pivot on PCE

The January S&P Global Manufacturing Purchasing Managers Index (PMI) for the US hit a 15-month high of 50.3 early Wednesday. This reading was far above the previous print of 47.9 and demonstrates that the manufacturing sector has rotated toward expansion. Any reading above 50 means the sector is expanding.

The S&P Global Services PMI also hit a seven-month high of 52.9 versus the forecast for a decline from 51.4 to 51.0. While the market has often treated positive US economic news as bad for stocks over the past year, this reading drew applause, and the Dow Jones zoomed higher on the release.

More economic data lays in store for Thursday. The Preliminary GDP reading for Q4 is forecast to reach 2% on an annual basis compared with 4.9% in Q3. December Durable Goods Orders the same day are forecast to grow 1.1% rather than the previous 5.4% print.

Before the market opens on Friday, the US Bureau of Economic Analysis will release the Core PCE data for December. Similar to the Consumer Price Index (CPI), the PCE conveys a snapshot of the state of inflation in the US economy.

The biggest difference between the CPI and the PCE is that the Fed prefers it to the CPI when deciding to raise or lower interest rates. Consensus calls for annualized December Core PCE to drop from 3.2%  to 3%. This would amount to further evidence that the Fed’s high rate environment continues to work toward reducing inflation.

The CPI earlier this month came in hot, and a hotter than expected reading for the PCE will send the S&P 500 into a tailspin. This is because a higher inflation reading will likely influence the central bank toward postponing rate cuts that are currently expected at either the March or May meetings.

Dow Jones earnings: Intel, Visa, American Express

Tuesday was a big day for index components in the Dow Jones. Dow component Johnson & Johnson (JNJ) posted an earnings beat on Tuesday alongside Procter & Gamble (PG), which offered up a mixed quarter but impressed on margins. Verizon Communications (VZ) beat expectations via its wireless segment, while 3M (MMM) beat consensus on adjusted earnings but sold off on worrying guidance.

Thursday sees Visa (V) and Intel (INTC) releasing quarterly results. The charge card leader is expected to post $2.34 in adjusted EPS on $8.55 billion, both of which amount to healthy gains on an annual basis. 

Much is expected from Intel’s ongoing turnaround, and this quarter’s consensus has the semiconductor firm earning $0.45 in adjusted EPS on $15.17 billion. These results would be much better than Intel’s results one year ago, and analysts have recently turned optimistic about CEO Pat Gelsinger’s attempt to kindle a renaissance. The company saw a unanimous upward revision in earnings estimates among analysts for Q4.

American Express (AXP) also reports on Friday. The Visa competitor is expected to post adjusted EPS of $2.65 on $15.95 billion in sales, and analysts are equally bullish on its profit prospects relative to Visa.

 

Nasdaq FAQs

The Nasdaq is a stock exchange based in the US that started out life as an electronic stock quotation machine. At first, the Nasdaq only provided quotations for over-the-counter (OTC) stocks but later it became an exchange too. By 1991, the Nasdaq had grown to account for 46% of the entire US securities’ market. In 1998, it became the first stock exchange in the US to provide online trading. The Nasdaq also produces several indices, the most comprehensive of which is the Nasdaq Composite representing all 2,500-plus stocks on the Nasdaq, and the Nasdaq 100.

The Nasdaq 100 is a large-cap index made up of 100 non-financial companies from the Nasdaq stock exchange. Although it only includes a fraction of the thousands of stocks in the Nasdaq, it accounts for over 90% of the movement. The influence of each company on the index is market-cap weighted. The Nasdaq 100 includes companies with a significant focus on technology although it also encompasses companies from other industries and from outside the US. The average annual return of the Nasdaq 100 has been 17.23% since 1986.

There are a number of ways to trade the Nasdaq 100. Most retail brokers and spread betting platforms offer bets using Contracts for Difference (CFD). For longer-term investors, Exchange-Traded Funds (ETFs) trade like shares that mimic the movement of the index without the investor needing to buy all 100 constituent companies. An example ETF is the Invesco QQQ Trust (QQQ). Nasdaq 100 futures contracts allow traders to speculate on the future direction of the index. Options provide the right, but not the obligation, to buy or sell the Nasdaq 100 at a specific price (strike price) in the future.

Many different factors drive the Nasdaq 100 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 Nasdaq 100 as it affects the cost of credit, on which many corporations are heavily reliant. As such the level of inflation can be a major driver too as well as other metrics which impact on the decisions of the Fed.

 

Dow Jones Industrial Average forecast

The Dow Jones Industrial Average has consolidated on Tuesday and Wednesday, while the S&P 500 and NASDAQ Composite keep moving higher. This appears due to large cap technology stocks continuing to hold sway compared with value stocks.

This week the DJIA is having difficulty sustaining a rally above 38,000. It will likely take baby steps as investors grow more confident with buying the index near all-time highs. A new all-time high of 38,109 was only just reached on Monday. The former high of 36,952 should still be seen as medium-term support, but in the short term the 30-day Simple Moving Average should reinforce the price action as it did last week. 

The only cause for concern is that there is an RSI divergence on the daily chart. This means that the price action for DJIA has seen higher highs between December 20, 2023 and January 22, 2024, while the Relative Strength Index has seen lower highs over that time period. This pattern typically precedes a bearish reversal.

Dow Jones Industrial Average daily chart

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