Dow Jones Industrial Average (DJIA)

• The DJIA dropped nearly 2% while the S&P 500 ended the week fractionally lower, breaking a three-week winning streak. The NASDAQ edged higher, supported by strong performance in communication services stocks. US Treasury yields surged, with the 10-year note closing at 4.40%, up from 4.15% the previous week, as inflation concerns lingered. Despite the pullback, the S&P 500 remains on track for consecutive annual gains of over 20%-a feat not seen since 1999-boasting a YTD total return of nearly 29%, following a 26% gain in 2023.
• Looking ahead, the Federal Open Market Committee (FOMC) meeting next week could spark market volatility. While a 25bps rate cut widely expected, inflation data may shape the Fed's Summary of Economic Predictions (SEP) and Powell's guidance, potentially prompting profit-taking. Additionally, Thursday's jobless claims will be closely watched, as recent figures have surpassed expectations for two consecutive weeks. Persistent increases in bond yields could further weigh on equities.
• The DJIA hit a fresh all-time high of 45,073 on 4 December but has since shown weakness, likely due to rising bond yields. The index appears poised to retest its 5-week SMA at 43,654 or potentially its 13-week SMA at 42,127 if the consolidation continues. Technically, the uptrend remains intact, though near-term direction will likely depend on bond yield movements.
• Overall, we anticipate continued consolidation with a slightly bearish bias and heightened volatility. A dovish Fed message or a reversal in bond yields could shift sentiment positively. Key support levels are at 43,654 (5-week SMA) and 42,127 (13-week SMA), while resistance is at 45,073 and the psychological 46,000 level.

Source: Kenanga Research - 16 Dec 2024