The Dow Jones index staged a major comeback on Monday after it struggled last week. The index rose by more than 580 points and ended the day at $33,876. The gains continued in the futures market, where the index added over 60 points. Other American indices like the S&P 500 and Nasdaq 100 also rallied.
Dow Jones after the Fed
The Dow Jones had a difficult time last week due to the hawkish statement by the Federal Reserve. The index declined by more than 3% – the worst weekly performance since October last year.
This drop happened after members of the FOMC signaled that the end of ultra-low interest rates and unlimited quantitative easing was coming to an end. They hinted that they would hike interest rates in 2023 instead of the previous guidance of 2024. Before then, the bank will start tapering its asset purchases that have pushed its balance sheet to the highest level on record.
As the US stocks gained, the US dollar and government bond yields declined. The dollar index fell by more than 0.15%, while the 10-year and 30-year bond yields fell to 1.49% and 2.118%. These yields are substantially below their year-to-date high of 1.76% and 2.40%, respectively.
This performance is partly caused by investors who believe that the equities market will do well even after the Fed starts the tightening. Furthermore, the bank will only tighten when the economy is doing well, meaning that demand will also be strong.
At the same time, companies in the Dow Jones will likely benefit from the overall infrastructure spending by the Biden administration. While the Republicans and Democrats have not yet reached a deal, there is a possibility that they will agree on one soon. The potential deal will be worth more than $1 trillion. This is in addition to the $6 trillion spending plan that Biden has lined ahead. Such a deal will benefit several Dow Jones constituents like Caterpillar, Dow Inc, and Verizon.
On Tuesday, the Dow Jones will react to testimony by Jerome Powell. In it, he will likely talk about the bank’s decision and its implications for the remainder of this year.
Nike earnings ahead
Nike will be the Dow Jones constituent to watch this week as the company publishes its quarterly results. The firm is expected to release Earnings Per Share of $0.51 and revenue of more than $11.56 billion. In the previous quarter, the company delivered revenue of $10.36 billion and an EPS of $0.90. These results will come at a time when the sporting industry is recovering. Still, the company will talk about its Chinese business, where it has faced some resistance recently.
Other important companies that will publish their earnings this week are FedEx, Darden, Accenture, and CarMax.
Meanwhile, the top performers in the Dow Jones were American Express, Boeing, Chevron, Travelers, and Goldman Sachs. The laggards on Monday were Merck, Intel, Amgen, and Salesforce.
Dow Jones technical analysis
The daily chart shows that the Dow Jones has been in a strong upward trend recently. The index rose to an all-time high of $35,106 on May 7. Notably, the index has moved below the 25-day and 50-day Exponential Moving Averages.
The price is also inside the ascending channel that is shown in black. Therefore, the index will likely resume the upward trend as investors reassess the impacts of the tightening Federal Reserve. If this happens, it may soon rise above the all-time high of $35,000.