The Dow Jones Industrial Average (DJIA) has recently hit a new all-time high in September, outperforming the S&P 500 and Nasdaq 100, which have not yet reached their July all-time highs. This development signals positive momentum in the US stock market.
### Key Points:
– DJIA hits all-time high in September
– S&P 500 and Nasdaq 100 lag behind
– US Treasury yield curve bull steepener prompts defensive rotation play
### Medium-Term Support:
– Keep an eye on the key medium-term support level of 40,030 on the DJIA
This analysis follows up on our previous report titled “US DJIA: UST yield curve un-inversion may help the laggard to catch up” published on July 4, 2024. For a recap, refer to the earlier report.
Since our last update, the DJIA has surged by 6%, surpassing the initial medium-term resistance level of 41,440 mentioned in our report. It recorded a new all-time closing high of 41,622 on September 16, just before the crucial US Federal Reserve monetary policy decision due later today.
The Fed is widely anticipated to initiate an interest rate cut cycle, with expectations ranging from a 25 basis points (bps) cut to a 50 bps cut on the Fed funds rate, currently standing at 5.25%-5.00%. This comes after the Fed had maintained the rate at its highest level in nearly two decades for 13 months.
### 50 bps Cut Expectation:
– The market has priced in a 65% chance of a 50 bps cut
– Expectations for a larger cut have grown significantly
The Fed funds futures market, as indicated by the CME FedWatch tool, now suggests a high likelihood of a 50 bps cut today, a significant increase from just a week ago. Furthermore, there is a growing expectation of a total 250 bps rate cut by the Fed over the next year, bringing the Fed funds rate down to 2.75%-3.00% by the September 17, 2025 FOMC meeting.
### Bull Steepening US Treasury Yield Curve:
– Defensive sector rotation play is reinforced
– Relative strength of key S&P sectors, including Magnificent 7 plus Netflix, US Semiconductors, and DJIA, as of September 18, 2024
The bull steepening of the US Treasury yield curve supports a defensive sector rotation play in the market. This trend is reflected in the relative strength of key S&P sectors, emphasizing the importance of strategic sector allocation in the current market environment.
In conclusion, the latest market developments, including the DJIA hitting a new all-time high, the anticipated Fed interest rate cuts, and the defensive sector rotation play, highlight the dynamic nature of the stock market. Investors should stay informed and adapt their investment strategies accordingly to capitalize on emerging opportunities and manage risks effectively.