Dow Jones Industrial Average (DJIA)

• Despite last Friday rebound, the S&P 500 and NASDAQ ended the week down over 1%, while the DJIA's decline was slight. October saw a 1.0% drop for the S&P 500, breaking a five-month win streak, with the NASDAQ and DJIA also posting losses. U.S. Treasury yields continued to climb for the sixth time in seven weeks, with the 10-year yield closing at 4.37%, up from 4.24% the prior week. Meanwhile, the Fed's preferred inflation gauge, the PCE Index, showed further easing, with the headline PCE rising 2.1% annually in September, down from 2.3% in August. Core PCE (excluding energy and food) rose 2.7%. Earnings season momentum remained strong, especially in tech, with analysts forecasting 3Q earnings growth of 5.1% for S&P 500 companies, according to FactSet.
• Looking ahead, several key events are poised to heighten market volatility. Tuesday's U.S. presidential election could significantly influence market sentiment and policy expectations. Meanwhile, the Federal Reserve's two-day meeting, concluding Thursday, has a 98% probability of a 25-basis-point rate cut, according to Bloomberg estimates. However, recent strong economic data may prompt the Fed to signal a more gradual easing path, potentially exerting selling pressure if this hawkish shift isn't fully "priced in." Alongside these events, a significant batch of 3Q earnings reports will provide further insights into corporate performance and economic health. Rising bond yields and a planned $125b U.S. Treasury issuance add to market concerns, as higher yields may impact investor sentiment and market dynamics.
• Technically, while the weekly DJIA remains on its upward trend, the divergence in the stochastic and RSI indicators suggests a continued near-term pullback. Additionally, despite the SmartMCDX banker chip continued to retrace last week, it still remained close to its 15 threshold, reinforcing the likelihood of further retracement ahead.
• This week, we expect heightened volatility with continued downtrend due to ongoing uncertainties. However, quick clarity on the election outcome or a less hawkish Fed stance could prompt a rally. Key support levels are 41,937 and 40,845 (aligned with the 13-week SMA), while resistance is at 42,292 and 43,325.

Source: Kenanga Research - 4 Nov 2024