Market Analysis: Dow Jones

The Dow Jones is the only index that hasn’t experienced a significant rise in value. For instance, last week the NASDAQ gained 3.77%, and the S&P 500 increased by 1.70%. This is because the Dow lacks exposure to the technology sector and growth stocks, being primarily composed of defensive and high dividend-yielding stocks. Of the top 10 most influential stocks in the Dow Jones, 5 rose in value while 5 declined, explaining the lack of growth.

Nevertheless, investors are considering whether the index is undervalued. Last week’s economic data, pointing towards lower inflation and weaker employment, is favorable for monetary policy. The US inflation rate fell to 3.3%, core inflation to 3.4%, and producer inflation to 2.24%. These readings were positive for all stocks, supporting bullish movements already seen in the NASDAQ and S&P 500. Additionally, higher-than-expected unemployment claims for the third consecutive week could indicate a need for defensive and high dividend-yielding stocks.

European stocks are trading higher while oil prices are lower, which is positive for stocks. Bond yields are higher on Monday but are retracing as the European Cash Open approaches. If yields don’t rise further, this data could signal a potential upward movement for the Dow Jones. Investors are also watching the Empire State Manufacturing Index, as a higher-than-expected index could support Dow stocks.

Therefore, the Dow Jones may be trading below its value, especially if interest rate cuts remain likely. Although the index might continue to lag behind the S&P 500 and NASDAQ, it is trading 3.75% below its 2024 highs and 1.50% below June’s highs. Investors are closely watching for indications of upward price movement, which could signal a potential rise to $38,714 in the short term. Currently, the price is forming a bullish crossover on both the 2-hour and 5-minute charts, with buy signals likely at $38,620.05 and $38,632.05 according to Fibonacci levels.