Dow Jones Industrial Average reveals benefit of not having semiconductors
The Dow Jones Industrial Average gained about 160 points, or 0.3%, to trade near 52,800 on Thursday, while the S&P 500 fell 0.2% and the Nasdaq Composite lost 0.9%.
- The DJIA trades near 52,800, up about 160 points, ahead of the S&P 500 and Nasdaq, as chip stocks fall on Taiwan Semiconductor Co.’s spending outlook.
- UnitedHealth shares jumped more than 6% on earnings beats, doing the heavy lifting on prices while more than 87% of early reporters were forecasting outperform estimates.
- Claims of 208K and a five-year high in the Philadelphia Fed survey flatter the real economy that the index is designed to represent.
The Dow Jones Industrial Average gained about 160 points, or 0.3%, to trade near 52,800 on Thursday, while the S&P 500 fell 0.2% and the Nasdaq Composite lost 0.9%. An early dip to 52,586.81 found buyers in the early hours and the index has since rallied to a session high of 52,828.90, leaving last week’s record of 53,333.18 within 1% of the tape. The blue-chip benchmark is the only major player in the green zone, and the reason is as much about what it lacks as what it has.
Superiority through Subtraction
Semiconductors are Thursday’s issue, and the Dow Jones Industrial Average has little exposure to them. Taiwan Semiconductor (TSM) beat expectations in the second quarter but raised its capex guidance to $60-64 billion from the previous range of $52-56 billion, and the market read the bill rather than the course. Shares are trading down about 2%, while Arm Holdings (ARM) is down more than 7%, Micron (MU) is down more than 5%, Advanced Micro Devices (AMD) is down more than 4%, Broadcom (AVGO) is down more than 3%, and US listing SK Hynix (SKHY) is crashing more than 9%.
The index’s escape route runs through the health insurance company. Shares of UnitedHealth (UNH) rose more than 6% after easily beating expectations, with one pricey stock outweighing the sector’s silicon crisis on a price basis. Add in banks breaking the mark earlier this week and a winning percentage above 87% among the top 40 S&P 500 reporters, and Thursday’s lead looks less like a turn to the old economy and more like a retreat from everything the old economy never bought. The verdict of the strategists that the power of profit extends to all limits only exacerbates the situation; weakness is concentrated in one overcrowded trade.
Data flatters Main Street and complicates the Fed
The 12:30 GMT data collection proved to be very hot where it was needed. Initial claims for unemployment benefits fell to 208 thousand against the consensus forecast of 217 thousand; The Philadelphia Federal Reserve’s manufacturing index soared to 41.4 versus expectations of 13, its strongest reading since November 2021; and the New York Fed’s services gauge came in at 8.7, the first positive reading in nearly two years. Retail sales rose 0.2% for the month, as expected, with the benchmark meeting the consensus 0.5%, although the ex-auto index fell 0.2% and gas stations fell 5.3% as fuel prices fell.
The strength goes both ways under a central bank that has backed away from policy easing. Futures are giving about an 83% chance of the July 28-29 meeting being postponed, with September prices tipping higher and half of the committee’s June forecasts calling for at least one hike this year; Cooler inflation on Tuesday caught the attention of the doves, which is why the 41-handle mill poll turned out to be awkward. The three Federal Reserve speakers, including the vice chairman, take the microphone from 16:30 GMT. Expected home sales, which fell 5.4% for the month versus an expected 0.5% decline, were a reminder at 1400 GMT that rate-sensitive corners aren’t getting any of it.
The record is within reach and no one is running
The index is within striking distance of its all-time high and is trading as if it would rather not discuss the issue. Light volume shredding, a leaderboard with one earnings report and a Middle East that this week reinstated a naval blockade without hurting stocks describe a market long in a state of complacency and starved of new money. Daily momentum is consistent with swings, with the Stochastic Relative Strength Index falling to a low of 60, although the price is holding within a percentage of the high, a sign that the market is treading water rather than accumulating. This position remains until either the record itself is broken or Friday’s data gives the tape an excuse.
Friday brings a mood check
Friday’s list will open with June housing starts and building permits at 1230 GMT, figures that will take on added weight after an expected drop in home sales on Thursday, followed by industrial production at 1315 GMT. The main event is the preliminary July University of Michigan consumer sentiment report at 1400 GMT, which is expected at 51 from 49.5, along with annual inflation expectations last seen at 4.6%. A consumer who continues to spend money despite inflation expectations above 4% is a complete argument for the growth of the real economy index. The second half of July brought a surge of expectations for the “hawks”.
Technical levels
Resistance: The session high at 52,828.90 caps the day for now, with the record at 53,333.18 the only structure above it on the daily chart.
Support: Thursday’s low at 52,586.81 is the nearest shelf. Below 52,000 and the rising 50-day exponential moving average at 51,349 frame the July uptrend.
Bias: higher. The width is ugly, but this index doesn’t contain any ugly parts. Earnings are rising, real economy data is accelerating, and holding above 52,586.81 keeps the record retest as the path of least resistance next week.
Dow Jones daily chart
Frequently asked questions about the Dow Jones Industrial Average
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, consists of the 30 most traded stocks in the United States. The index is weighted by price rather than capitalization. It is calculated by summing the prices of the component stocks and dividing them by a ratio, which is currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In subsequent years, it has been criticized for its lack of representativeness because it only tracks 30 conglomerates, as opposed to broader indices such as the S&P 500.
The Dow Jones Industrial Average (DJIA) is influenced by many different factors. The aggregate results of its member companies, as shown in the companies’ quarterly earnings reports, are the primary results. Macroeconomic data from the US and the world also contributes by influencing investor sentiment. The level of interest rates set by the Federal Reserve (Fed) also affects the DJIA because it affects the cost of borrowing, on which many corporations rely heavily. Thus, inflation may be a major factor, as well as other indicators, influencing the Fed’s decisions.
The Dow Theory is a method of determining the underlying trend of the stock market, developed by Charles Dow. The key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only track trends where both are moving in the same direction. Volume is a confirmatory criterion. The theory uses elements of peak and trough analysis. The Dow Theory postulates three phases of a trend: accumulation, when the smart money begins to buy or sell; public participation, where the wider public joins in; and distribution when the smart money leaves.
There are several ways to trade DJIA. One is to use ETFs, which allow investors to trade the DJIA as a single security, rather than buying shares of all 30 of its constituent companies. A prime example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts allow traders to speculate on the future value of the index, while options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds allow investors to buy a share of a diversified portfolio of DJIA stocks, thereby providing exposure to the overall index.