The Dow Jones Industrial Average (DJIA) surged 450 points on Thursday, fueled by better-than-expected US Gross Domestic Product (GDP) growth figures for Q2. Investor confidence received a boost following the positive GDP data, with all eyes now on the upcoming US Personal Consumption Expenditure Price Index (PCE) inflation numbers set to be released on Friday. The market anticipates that the Federal Reserve (Fed) will initiate a series of rate cuts starting in September. However, a late-day pullback limited the Dow’s gains to around 200 points.
Thursday’s US Q2 GDP numbers surpassed forecasts, lifting market sentiment and prompting a return of investors’ optimism. The annualized Q2 GDP growth rate of 3.0% exceeded expectations of 2.8%, while Initial Jobless Claims dipped to 231K for the week ending August 23, lower than the anticipated 232K. Additionally, the previous week’s revised figure stood at 233K.
Looking ahead to Friday, the US core PCE inflation data is expected to remain stable on a monthly basis and show a slight increase year-over-year. The forecast predicts a 0.2% monthly increase in July’s core PCE inflation, with the annual figure expected to rise to 2.7% from the previous 2.6%. A deviation from these expectations could impact market expectations regarding the Fed’s rate cut plans.
Dow Jones Market Update
The Dow Jones index experienced a risk-on sentiment on Thursday, with the majority of listed securities trading in positive territory. Only three stocks were in the red, with Home Depot (HD) being the notable decliner, dropping below $370.00 per share.
After-hours earnings reports from Nvidia (NVDA) failed to impress tech-focused investors, as the company’s profit growth did not meet lofty expectations set by market participants.
Dow Jones Price Analysis
The Dow Jones climbed back above the 41,300 level on Thursday, following a brief dip earlier in the week. The index displayed a bullish bias as daily candles tested record highs established at the beginning of the trading week. Traders cautious of a potential pullback should monitor the 50-day Exponential Moving Average (EMA) near the 40,000 level for key support.
Understanding Federal Reserve Policies
Monetary policy in the US is guided by the Federal Reserve (Fed), which aims to achieve price stability and full employment through interest rate adjustments. The Fed’s actions influence the strength of the US Dollar and impact borrowing costs in the economy. Policy decisions are made at eight FOMC meetings annually, attended by twelve Fed officials.
In extreme situations, the Fed may implement Quantitative Easing (QE) to boost credit flow, while Quantitative Tightening (QT) involves reducing bond purchases to strengthen the US Dollar.