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Investors’ growing concerns regarding weakening US data have caused the Dow Jones to reverse. Bets on a November Fed rate drop have taken over in the markets. With a steep decline in stocks on Monday, NFP week officially begins. Investors pulled back after the US ISM Manufacturing Purchasing Managers Index (PMI) data unexpectedly dropped in May, which caused the Dow Jones to drop about 300 points on Monday. As investors reevaluate their expectations for the US economy, softening US data reduced their appetite for risk.
Despite an uptick in May’s S&P Global Manufacturing PMI, which rose to 51.3 compared to the expected flat hold at 50.9, investors are balking after the ISM Manufacturing PMI for the same period eased lower. May’s ISM Manufacturing PMI eased back to 48.7 from the previous month’s 49.2, falling away from the market forecast increase to 49.6.
According to the CME’s FedWatch Tool, rate markets have fully priced in a first rate cut from the Fed in November, with interest rate traders seeing over 96% odds of an initial 25-basis-point decline in the Fed Funds Rate by the Federal Open Market Committee’s (FOMC) November rate decision.
The Dow Jones initially plunged 400 points in early Monday trading, recovering slightly to -300 points on the day as investors try to recover their footing. Around two-thirds of the DJIA’s constituent equities are in the red on Monday, with losses lead by Chevron Corp. (CVX) which fell -3.35% to $156.71 per share. CVX is closely followed by Dow Inc., which fell -3% to %55.91 per share on Monday.
Boeing Co. (BA) rebounded 2.34% on Monday, climbing to $181.91 per share. Merch & Co Inc. (MRK) followed closely behind, gaining 1.85% and rising to $127.85 per share.
Technical Outlook
Monday’s pullback chewed throw a significant portion of last Friday’s much-needed rebound, keeping the Dow Jones pinned below 39,000.00. The major equity index is still down over 4% from record highs set just above 40,000.00.
The Dow Jones is on pace to close down once more on Monday, and the index’s pullback has seen the DJIA close in the red for all but three of the last ten consecutive trading sessions. The Dow Jones still remains firmly in bull territory, but bids are edging closer to the 200-day Exponential Moving Average (EMA) at 37,247.44.
