October was a tough month for the Dow Jones Index, as it recorded its first decline in five months. Ironically, it was a month filled with earnings-fuelled volatility, with most big tech companies posting forecast-beating revenues. So why are US equities declining and what’s the way forward for the Dow?
As the equities markets have largely been on an uptrend, some of the gains registered have been purely sentiment-fuelled. The AI hype, in particular, has driven some stock prices higher to multiple times their forward earnings. As things stand, many companies are overvalued, and it is upon this realisation that more investors are likely to start taking profit in the coming days.
The Dow Jones Index decline couldn’t have come at a worse time, dropping amidst forecast-beating earnings. After this, most stocks will lack the incentive to keep investors buying, and the Dow Jone Index momentum may not be as strong in the last quarter of the year.
The Dow is seemingly using Indian stock markets as a template, and it wouldn’t come totally as a surprise, even if key US macroeconomic data affirm stability. It’s just a peculiar way stock markets operate. Investors just don’t keep their funds locked for perpetuity. When payday comes, everybody lines up to get what they’ve earned.
In India, the benchmark Nifty 50 Index is down by 6 percent in the last month, coming from a four-month winning streak, and after having only registered two sub-one percent monthly losses since January. For the Dow Jones (INDEXDJX: .DJI), however, its only other monthly loss besides the drop in October was a 5 percent loss in April. Similarly to the Dow Jones Index, the Nifty 50 Index’s year-to-date gains are at 11 percent. Also, both indices broke their all-time highs multiple times this year.
Meanwhile, many investors have priced in the Fed’s expected 0.25 percent slash of interest rates in November. That, too, leaves little incentive for equities to build upside momentum. However, a significant shift in market fundamentals could come from the November 5 US presidential elections. In particular, a Donald Trump win could usher in a substantial shift in US economic policies, with new tariffs and corporate taxes potentially triggering the markets to reset.
The Dow Jones Index pivots at 41,988 points, and the downside will likely continue if resistance stays at that mark on the daily chart. The first support is likely to come at 41,728, but a stronger downward momentum could break below that level to test 41,620.
On the upside, moving above 41,988 will signal that the bulls are in control. In that case, the first resistance will likely be at 42,175. However, if the buyers extend that control, it could result in a breach above that level to test 42,350. Meanwhile, such a move would invalidate the downside narrative.
This post was last modified on Nov 01, 2024, 17:12 GMT 17:12