Will the Dow Jones Continue to Outperform? Dow Jones Futures (YM) have experienced a notable resurgence since the bottoming of 30-year bonds in late October, leading to lower yields. This rally in risk assets has propelled the Dow to trade at 52-week highs, overcoming the prevailing headwind of interest rates throughout much of the year.
Recent robust earnings from Salesforce positioned the Dow for outperformance in last week’s trade, as investors also shift focus from mega-cap tech stocks towards the Dow and the Russell 2000 as a "Catch Up" trade.
A significant boost to the Dow's relative outperformance occurred with the observed bottom in Chicago PMI numbers on November 30th, revealing manufacturing sector expansion well above consensus estimates (55.8 vs. 45.4 expected). This data has further bolstered confidence in the Dow Jones rally.
Major Headwinds for the Dow Jones:
However, the upcoming week poses challenges for risk assets, including Dow Jones futures, with various job-related data releases such as ADP Nonfarm, Avg Hourly Earnings, Unit Labor Costs, and the Unemployment rate. This data is expected to introduce volatility to the markets as bond traders recalibrate interest rate expectations for 2024.
Another significant headwind is the scheduled release of the Fed’s summary of Economic Projections on December 13th, including the infamous Dot Plot. The Dot Plot will outline the Fed’s interest rate expectations, potentially differing significantly from market expectations, which may create a volatile environment into the end of the year.
Support & Resistance:
Technically, the Dow has broken and closed above the old resistance of 35750-35880, which now serves as new support. To test all-time highs, a decisive break and close above 36305-36505 is awaited, signaling the Dow's sustained upward momentum amid shifting market dynamics.
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*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
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