Dow Jones Index Downside Prevails As Shaky Fundamentals Weigh In

Summary:
• The Dow Jones Index losses seem likely to continue piling up as investors get jittery over US economy and treasuries offer better returns.

The Dow Jones Index was on course to extend its losses to the eighth straight session on Friday, as negative investor sentiment weighed it down. The Index closed down by 330 points or 0.86 percent on Thursday as investors reacted to disappointing earnings figures from Salesforce. The CRM giant was down by 0.12 percent in the premarket session at the time of writing, extending Thursday’s loss of -19.74 percent.

In a day of widespread losses, the top three companies in the Index all closed in the red. The Index’s largest company by weight, UnitedHealth Group, shed 0.63 percent, Goldman Sachs closed the day down by 0.92 percent. Microsoft, whose weight constitutes about 7.3 percent of the Index, also went down significantly, losing 3.38 percent.

Salesforce reported fiscal first quarter results on Wednesday, in which it missed revenue targets by 0.43 percent, reporting earnings 0f $9.13 against consensus forecast $9.17 billion. The figure was the largest daily drop since July 2004, sending a bearish signal across the market. However, the Dow’s problems run deeper than Salesforce.

Yields on US treasury bonds have risen this week, as hawkish Fed stance raises prospects of higher-for-longer interest rates. Benchmark 10-year bonds are currently yielding more than 4.5 percent, offering increased competition to high-risk assets like equities.  Also, investors are concerned that the US economy could be adversely affected if the current interest rates remain elevated for longer.

Thursday’s release of final US GDP reading showed that the world’s largest economy grew by 1.3 percent in the first quarter of the year, lower than the previously reported figure of 1.6 percent. Furthermore, that was a substantial drop from the 3.4 percent growth rate reported in the fourth quarter of 2023. Also, initial jobless claims filings rose by 219k in the week ending May 23, exceeding the forecast estimate 219k.  Looking ahead, investors will have their eyes on the April PCE price index readings for further guidance.

Technical analysis

The Dow Jones Index is currently bearish-leaning, and the downside will likely continue, with the pivot will likely be at 38,195.01. The downward momentum will likely find its first support at 38,009.01, but an extension of control by the sellers will break that support and potentially test 37,882.89. On the other hand, a move above 38,195.01 will signal control by the buyers, with the next resistance likely to be at 38,358.50. Extended control by the buyers will likely break the resistance, at which point the downside will become invalid. Furthermore, the upside momentum could go on to test 38,547.05.