The Dow Jones Industrial Average (DJIA) was relatively stable on Monday, hovering around 40,600.00 as investors await the Federal Reserve’s (Fed) upcoming rate decision. The Fed is anticipated to maintain current interest rates during this week’s meeting, but market participants will be monitoring any changes to forward guidance in preparation for a potential rate cut in September.
Investors are already pricing in a rate reduction in September, with expectations of at least a quarter-point cut on September 18. The CME’s FedWatch Tool indicates a 90% probability of a 25 bps cut, with a slim chance of a double-cut. Additionally, the release of US Nonfarm Payrolls (NFP) data later in the week will be crucial in determining the Fed’s next move, particularly if hiring figures continue to show a slowdown.
In terms of stock movements, the Dow Jones remained relatively unchanged on Monday, with some stocks performing well while others lagged. McDonald’s Inc. (MCD) reported lower-than-expected revenue and earnings, but the stock price surged by 4.4% as the company announced plans to enhance competition through pricing strategies and expects increased foot traffic with new value offerings.
From a technical perspective, the Dow Jones held steady near 40,600.00, indicating a potential near-term recovery despite recent fluctuations. Although the index briefly dipped below 40,000.00 last week, it managed to establish a new support level around 37,395.00. Long-term momentum remains bullish, with the Dow Jones trading above the 200-day Exponential Moving Average (EMA) at 38,011.80.
The Federal Reserve plays a crucial role in shaping US monetary policy by adjusting interest rates to achieve price stability and full employment. The Fed’s upcoming policy meeting will provide insights into its future actions, with the possibility of a rate cut in September. The Fed also holds eight policy meetings annually, where the Federal Open Market Committee (FOMC) evaluates economic conditions and makes monetary decisions.
In exceptional circumstances, the Fed may implement Quantitative Easing (QE) to increase credit flow in the financial system. QE involves buying high-grade bonds to stimulate economic activity during crises or low inflation periods. Conversely, Quantitative Tightening (QT) involves reducing bond purchases to control inflation and strengthen the US Dollar.
Overall, investors are closely monitoring the Fed’s actions and economic indicators to gauge the future direction of financial markets. While uncertainties exist, staying informed and conducting thorough research are essential for making sound investment decisions.