- Dow Jones fell another 1,300 points from Friday’s close.
- Markets are recoiling amidst concerns of an escalation in Middle East conflicts.
- Souring US economic data is increasing concerns of a wider economic slowdown.
The Dow Jones Industrial Average (DJIA) extended into a third straight day of downside momentum as equities plunge in the face of a bad batch of US economic figures signalling the growing possibility of a harder, deeper recession than most investors were prepared for in the coming months. Geopolitical tensions are also on the rise, further batting down risk appetite as the Israel-Palestinian Hamas conflict looks set to widen with the possible involvement with Iran.
Last Friday’s US Nonfarm Payrolls (NFP) would have been a good print in years past, but that was then and this is now. The lowest initial print in the number of net jobs additions since 2019 sent shockwaves through investor markets, dragging down equities and sparking fears of a broad recession over the horizon for the US economy. Monday accelerated losses, sending all US sectors and indexes into the red.
The US S&P Global Services Purchasing Manager Index (PMI) for July eased to 55.0 from the expected hold at 56.0, and July’s Composite PMI also ticked down to 54.3 instead of the forecast flat hold at 55.0. Still, a glimmer of hope on the data front: the ISM Services PMI for July rose to 51.4 on Monday, beating the forecast increase to 51.0 from the previous 48.8.
After the assassination of two of Iran and Hezbollah’s militant leaders last week, markets are bracing for an expected escalation in the Middle East conflict that has been bubbling for months. Iran is expected to retaliate directly against Israel for its hand in assassinations that took place in Beirut and Tehran, and the US is deploying warships to the region in an effort to stave off a further widening of the conflict.
Dow Jones news
The Dow Jones plummeted to a 1,300 point decline from Friday’s close in early Monday trading as the entire stock index prints in the red. All US sectors are down on Monday, with losses being led by Intel Corp. (INTC), which fell -6.3% and is approaching $20.00 per share after the software company announced a minor miss in second-quarter revenue and slightly lowered forward guidance on revenue for the current quarter.
Dow Jones technical outlook
Monday’s bearish plunge dragged the Dow Jones to an eight-week low of 38,382.90. Bids have fallen with touch range of the 200-day Exponential Moving Average (EMA) at 38,108.94, a feat that hasn’t been accomplished since the DJIA soared back over the long-term moving average in November of last year.
Despite near-term declines dragging the Dow Jones into correction territory, down around -7% peak-to-trough from all-time highs set above the 40,000.00 major price handle, price action still has a long way to go before testing full-on bear country at the 20% contraction mark near 33,108.00.
Dow Jones daily chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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