The Dow Jones Industrial Average (DJIA) experienced a significant rally on Tuesday, gaining 300 points following a more-than-expected easing of US Producer Price Index (PPI) inflation in July. This positive development allowed stocks to breathe, propelling the DJIA to 39,700.00.
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US PPI inflation dropped to 2.2% year-over-year in July, lower than the anticipated 2.3% and a decrease from the revised 2.7% in the previous period. Core PPI inflation also saw a decline to 2.4% for the year ending in July, below the forecasted 2.7% and significantly lower than the previous 3.0%. The ongoing decrease in US inflation pressures boosted risk appetite in the market, with expectations of a 50 basis point double-cut from the Federal Reserve (Fed) in September rising to 55% according to the CME’s FedWatch Tool.
Key data to watch out for is the US Consumer Price Index (CPI) inflation report scheduled for Wednesday. Core CPI inflation is expected to decrease to 3.2% year-over-year from 3.3%. With markets already pricing in at least a quarter-point cut from the Fed in September, further easing in inflation metrics could lead to increased speculation of a double cut.
Dow Jones Market Performance
All but five of the Dow Jones’ constituent securities were in positive territory on Tuesday, with Walmart Inc. (WMT) being the exception, falling by -1.25% to $67.80 per share ahead of its upcoming earnings report on August 15.
Nike Inc. (NKE) saw a strong rally of 5.6% on Tuesday, reaching $78.83 per share. The footwear giant experienced a rebound in its share price due to renewed investor confidence in its brand momentum, following strategic production chain adjustments and successful new shoe releases that generated significant interest. Nike had previously faced challenges after a disappointing fiscal quarter performance that caused its stock price to drop from over $90.00 per share.
Dow Jones Price Forecast
The Tuesday rally pushed the Dow Jones to a one-week high, approaching 39,800.00 as investors aim to reclaim the significant 40,000.00 price level. The index had recently dropped to its lowest levels in weeks near 38,400.00 after a fall from all-time highs near 41,400.00.
The DJIA is now trading above the 50-day Exponential Moving Average (EMA) for the first time since early August. Long-term trends favor buyers, with the index maintaining levels above the 200-day EMA at 38,166.00.
Economic Indicator: Producer Price Index (YoY)
The Producer Price Index, released by the Bureau of Labor Statistics, Department of Labor, measures the average price changes in primary US markets by commodity producers at all processing stages. Changes in the PPI are closely monitored as an indicator of commodity inflation. A high reading is generally positive for the USD, while a low reading is considered negative.