Dow Jones Hits New Record High as Inflation Growth Falters

Summary:

The Dow Jones Industrial Average has hit a new record high after inflation expectations were dashed by lower-than-expected US Core CPI numbers.

The Dow Jones Industrial Average has set a new record this Wednesday, hitting a high of 32212 after data from the US showed that Core Consumer Price Index rose by less than expected in February. Core CPI rose by 0.1%, which was less than the 0.2% that the markets had expected.

So why did the Dow Jones rise to new highs? Here’s the connection.

Higher than expected consumer inflation would have taken inflation targets closer to the Fed’s benchmark to start considering a rate hike. Rate hikes increase the cost of borrowing for investments such as shares, but they increase the yields of bonds. The net effect is a shift of capital from the stock market to the bond market, which is why 10-year bond yields had been experiencing an anticipatory increase.

With the lower-than-expected consumer inflation, rates will likely stay low for a long time, which is good for stocks and bad for bonds. This is also why the 10-year US Treasury yield was beaten back from intraday highs by almost 80%.

The Dow is up 1.01% on the day amid good buying momentum.

Technical Levels to Watch

The 32505 price level remains the potential target for bulls, being the 100% Fibonacci extension from the 14 May 2020 to 1 September 2020 swing move. The active daily candle needs to close above the previous resistance of 32084 by a 3% penetration to confirm the push to this level.

On the other hand, failure of the active candle to attain this price filter could lead to a pullback, targeting 31739 initially, with 31282 and 30953 serving as additional targets to the south.