Dow Jones climbs to fresh all-time high

The Dow Jones climbed by 450 points, hitting an all-time high above $40,200.00. Markets are mostly ignoring the fact that US PPI wholesale inflation has accelerated. Five-year inflation predictions eased, while US consumer mood surveys deteriorated.

Even though US Producer Price Index (PPI) inflation increased more quickly than anticipated in June, the Dow Jones surged almost 450 points on Friday as investors reaffirmed their expectations for rate reduction from the Federal Reserve (Fed) in September.

Regarding rate cut projections, markets have completely missed the mark, pricing in three rate reductions in 2024 and a 95% probability of a rate cut on September 18.

The Dow Jones is expected to have one of the index’s best three-day performances of the year after rocketing up 450 points on Friday. With the exception of four stocks, all of the Dow Jones constituents are up on Friday. JPMorgan Chase & Co. (JPM) is down the most, down -0.94% to $205.50 per share.

The stock is still declining after hitting all-time highs ahead of Q2 reports, even though the company reported second-quarter earnings that were stronger than anticipated. JPM easily outperformed the predicted forecasts of $5.88 with QoQ earnings of $18.1 billion, or EPS of $6.12.

On the plus side, as the AI market surge continues, Intel Corp. increased by almost 5%, reaching over $35.00 per share. Greg Lavender, the chief technology officer of Intel, recently stated that by the conclusion of the company’s fiscal year in 2027, he expects AI-related cloud computing subscription income to reach $1 billion annually for Intel.

Even if the growth estimate for AI services revenue is nothing short of extraordinary and is contributing to the further rise in Intel stock, the amount is still far smaller than that of Intel’s core semiconductor business, which regularly generates sales in excess of $50 billion yearly.

In terms of data, the US core PPI wholesale inflation for June increased to 3.0% YoY, completely above the 2.5% expectation. Additionally, the print for the prior period was revised upward to 2.6% from the original 2.3%. Markets are instead focusing on a drop in Consumer Price Inflation (CPI) inflation earlier in the week in order to firmly lean into rate cut hopes, despite the significant spike in producer-level inflation.

Rate market bets of at least a quarter-point rate trim at the Federal Open Market Committee’s (FOMC) September 18 rate call are based on the CME’s FedWatch tool. In addition, rate traders are now factoring in a minimum of three rate reductions for 2024, surpassing the Federal Reserve’s own estimate of one or two rate cuts by December.

In other US statistics released on Friday, the University of Michigan’s Consumer Sentiment Index poll underperformed forecasts, falling to a seven-month low of 66.0 from a prior high of 68.2.

This occurred as US consumers became more pessimistic about the outlook for the economy. Markets are making a great effort to ignore how much higher long-run consumer inflation expectations are than the Fed’s target annual inflation rate of 2.0%. The UoM 5-year Consumer Inflation Expectations softened marginally in July, creeping down to 2.9% versus the previous 3.0%.

Technical Outlook

On Friday, the Dow Jones reached a new all-time high of 40,260.24, rising more than 400 points while other markets saw gains. The Dow Jones has now increased by over 6% since the last significant swing low near the 38,000.00 area in late May, with the DJIA rising by more than a half percent during the final trading session of the week.

With new record high bids, the Dow Jones index is up 6.82% in 2024 after rising a remarkable 24.59% from the index’s swing low of 32,300.00 in late 2023.

The 200-day Exponential Moving Average (EMA) is currently trading at 37,733.00, and as a result, bidders should position themselves to place a distance between their bids and the closest technical floor, which is priced in at the 50-day EMA, which is located around 39,095.00.