Dow Jones Industrial Average (DJIA)

• The S&P 500 and DJIA ended their six-week winning streak, falling 1% and 3%, respectively, while the NASDAQ extended its rally for a seventh week, driven by strong tech earnings. Modest selling pressure came from rising bond yields, fuelled by solid economic data and higher Treasury issuance expectations. The 10-year Treasury yield climbed to 4.24%, up from 4.07% last week, marking its fifth increase in six weeks, as inflation concerns linger and uncertainty over future rate cuts grows. So far, 183 S&P 500 companies have reported 3Q earnings, with revenue growth at 3.88% and earnings at 3.59%. Investors remain focused on future outlooks, with FactSet projecting EPS growth of 14% in 4Q and 15.1% for 2025, shaping market sentiment.
• Looking ahead, with Election Day just nine days away, traders may reassess exposure following the DJIA's 6.6% gain since the early August sell-off. Intra-week volatility is expected to rise as five mega-cap tech companies release their earnings, while the rapid rise in bond yields adds to uncertainty, potentially driving further selling pressure. The fast-approaching US presidential election on 5 November is raising fiscal concerns, with both candidates' policies likely to expand the already elevated national debt. Stimulative fiscal actions, whether tax cuts or increased spending, could compel the Fed to maintain higher interest rates than initially anticipated. Friday's monthly jobs report may also boost volatility. However, declining yields or strong tech earnings could shift sentiment, sparking a rally and challenging the bearish outlook.
• Technically, the weekly DJIA remains on its upward trend, staying above all major SMA lines. However, the divergence in the stochastic and RSI indicators suggests that a near-term pullback could be imminent. Additionally, the SmartMCDX banker chip retraced last week but closed near the 15 level, reinforcing the likelihood of further retracement ahead.
• We expect market volatility to intensify this week, driven by continued profit-taking, likely leading to a modest pullback. However, if bond yields retreat or mega-cap tech firms deliver exceptional earnings and outlook, stocks are likely to rally. Key support levels are 41,806 and 40,744, aligned with the 13-week SMA, while resistance levels are 43,406 and 44,000.

Source: Kenanga Research - 28 Oct 2024