Dow forecast: Key data, earnings and US election all coming up

• Dow forecast: Major indices posted weekly losses amid election uncertainty, rising yields
• Key upcoming economic data and tech earnings reports keep investors on their toes
• Israel strikes Iran, all eyes on how Tehran will respond now

 

Treasury yields finally take toll on stocks

 

US stocks were trading higher initially on Friday, benefiting from a slight drop in Treasury yields. But as yields rebounded, with the 10-year rising towards a 3-month month high of 4.26% hit in mid-week, stocks came sharply off their earlier highs. That ensured that the Dow Jones would close lower for the fifth consecutive time, resulting in a weekly loss of more than 2.5%. Small caps also slumped, while the tech-heavy Nasdaq finished flattish, helped by Tesla’s earnings and Nvidia surging to a new record high. The VIX posted a positive weekly close above 20.0 ahead of this week’s key events, which could further influence the Dow forecast.

 

Looking under the hood, financials (XLF) led the drop on Friday with a fall of 1.1% and nearly 2.1% for the week. Industrials (XLI) lost 2.8% on the week, while energy (XLE) lost 0.6% on the week and ensured a hattrick of weekly losses. Technology (XLK) was flat on the week, while semiconductor (SMH) rose 0.6%. Once again gold outperformed with GLD rising 0.8% last week.

 

With financials and industrials taking the biggest hit, and energy also not doing great, the Dow and Russell were the obvious losers among the major indices. The focus will remain on the Dow in the week ahead, and traders will want to see whether the indices that outperformed last week will also feel the pain from rising yields as stronger economic data has curbed optimism for aggressive rate cuts from the Federal Reserve.

 

Economic Data Points to Slower Rate Cuts

 

Last week’s stronger economic indicators have reinforced expectations that the Federal Reserve may take a measured approach to future rate cuts, but will that change in the week ahead with some top-tier data to come including JOLTS, non-farm payrolls and ISM surveys? Last week’s data releases—such as jobless claims, services PMI, and durable goods orders— all surpassed forecasts, suggesting economic resilience. If we see a similar outcome from most of this week’s data releases, then that could even raise question marks over further rate cuts beyond the two more priced in for this year, as the Fed may be more inclined to wait and see before easing policy further.

 

While a strong economy supports corporate earnings, it can also sustain higher yields, which may weigh on stock valuations. As a result, traders and investors are closely watching incoming data to gauge whether the Fed will indeed adopt a more gradual approach to rate reductions.

 

 

US Election Uncertainty Adds Pressure

 

The US presidential election is also in focus, with polls and odds markets showing a close race. Some betting markets are leaning toward a Trump victory, while other polls show a tie. A Trump win could have inflationary implications, potentially impacting the Federal Reserve’s approach to rate policy. Given Trump’s policies, investors may anticipate a more aggressive Fed response to manage potential inflation, which could affect stock prices and increase market volatility.

 

The uncertain outcome has led investors to adopt a cautious stance, with many waiting to see how the election results may influence the Fed's future policy decisions and overall market sentiment. This has been evident in markets falling last week, VIX rising and gold hitting new record highs.

 

Dow forecast: Upcoming Earnings and Economic Reports

 

As we head into a pivotal week and a half, several high-impact events could shape market direction. Investors are bracing for a series of earnings reports from major companies, often referred to as the "Magnificent 7" stocks, alongside the US monthly jobs report. These, combined with the US election on November 5, represent a series of risk events that could sway investor sentiment and thus impact the Dow forecast.

 

Given the recent increase in yields, strong economic data, and the close election race, it is unlikely we’ll see investors rush to buy the dips. For now, a cautious approach may be warranted as investors navigate these uncertainties and await clearer signals for the market’s direction.

 

Week ahead: Jolts, BoJ, NFP and lots of earnings

 

There are at least three major macro factors that could impact the Dow forecast in the week ahead, while on a micro level, several tech names are reporting their results. My colleague Matt Weller has covered the “Magnificent Seven” Q3 2024 Earnings Preview already, so check out the link provided.

 

JOLTS Job Openings

Tuesday, October 29

14:00 GMT

 

With the Fed’s focus turning to employment, we will give preference to any labour market indicators over other data releases in the next couple of months. Though this data release is not very up to date (with this one covering August), it can still impact the market because job openings are a leading indicator of overall employment, and they usually take a few months to be filled. Last time we saw a surprisingly strong print of 8.04 million, aiding the dollar’s rally.

 

 

BoJ Policy Meeting

Thursday, October 31

03:00 GMT

 

With the Japanese snap elections taking place this weekend, the Nikkei and yen could already move sharply by the time the Bank of Japan’s policy decision arrives on Thursday. Some polls suggest Prime Minister Shigeru Ishiba’s gamble could backfire. The PM has also called for the BOJ to keep rates low. Thus, if he survives the vote, this could increase chances of the BoJ maintaining a dovish policy stance longer rather than try to normalise its policy. The central bank is expected to hold policy unchanged.

 

US nonfarm payrolls

Friday, November 1

12:30 GMT

 

Last month’s surprisingly good nonfarm payrolls data helped to fuel a big rally in the dollar as the market was forced to drop its calls for further outsized rate cuts from the Fed. Let’s see if those numbers will be revised and whether the strength in the labour market continued for another month. Any further strength in employment data could even call into question the now lower expectations of 50 basis points worth of more rate cuts in the next two FOMC meetings in 2024. This will undoubtedly move the Dow and other US indices too.

 

Technical Dow forecast: key levels to watch

 

Source: TradingView.com

 

The technical Dow Jones forecast has turned a tad bearish following last week’s drop. The last weekly drop of a similar magnitude took place in early September. That time, though, there was no immediate election risk, and so the index quickly bounced back and went on to hit new records in the pursuing weeks. This time, it could be different. Still, we will need to see a lower low to confirm the bearish reversal beneath the last short-term low at 41,800.

 

If seen, we could see a sizeable drop with the next obvious support not seen until around 40,900 to 41,000 area. The longer-term trend line and 200-day average converge around the psychologically important area of 40,000.

 

Standing in the way of these potential support levels is another one close to where the market finished on Friday, around 42,000.

 

In terms of resistance levels to watch, the most important one in my view lies at 42,400. This level is now pivotal insofar as the short-term technical outlook is concerned.

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R