Dow Jones
The Dow Jones index declined by more than 2% mostly because of the falling oil prices, rising risks of a deeper recession in the United States, and the ongoing corporate earnings season.
As we reported earlier today, the price of United States oil dropped to the lowest level in more than two years. This decline happened as investors continued to question the deal that was signed between OPEC and Russia in the previous week. The key concern is that the deal will not help to rebalance oil prices because of the lack of demand. In fact, according to analysts, oil storage in the United States is running out. Just last week, the EIA reported that inventories had jumped to an all-time high of 19.5 million barrels.
The second reason why oil prices declined today is that futures contract for May will expire tomorrow. Futures contract are essential hedges that allow investors and energy participants to buy and sell assets at a fixed price in the future. According to analysts, the price of assets tend to move lower or higher a day before the expiration.
As a result of the low oil prices, the share prices of ExxonMobil and Chevron declined by 5.6% and 4.2% respectively in the premarket.
Another reason why the Dow Index fell is that the economic fallout in the United States is rising. While the curve in most states appear to be turning, there are concerns that the economic hit will be worse than expected. Just last week, data from the Labour Department showed that more than 5 million people lost their jobs in the previous week. This brought the total number of people who have lost their jobs in the past month to more than 22 million. Further, investors are possibly getting sceptic about the coronavirus drug that led to a market rally last Friday.
Finally, the Dow Jones is probably falling because of the ongoing earnings season. This week, more companies including Netflix and IBM will release their earnings. Going by the numbers released last week, the situation will likely be worse. For example, according to FactSet, most companies that have released their earnings have reported weak numbers. Further, analysts expect companies’ earnings to fall by 14.5% this quarter down from 12% last week.
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On the four-hour chart, the Dow Jones index has found some resistance at the 50% Fibonacci Retracement level. This retracement was drawn by combining the highest and lowest levels this year.
In addition, we se that the index has been moving upwards in an equidistance channel. Therefore, I expect the index to pullback and possibly test the 50-day EMA at $23,400 before resuming the upward trend.