Dow Jones Industrial Average (DJIA)

• U.S. stocks saw modest gains for the week, with the S&P 500 and DJIA hitting new record highs, while the NASDAQ remained 2.7% below its peak. DJIA followed a similar pattern to August, starting the month with sharp declines but recovering to close September with a 0.05% gain. A stronger-than-expected jobs report tempered hopes for aggressive Fed rate cuts, pushing the 2-year Treasury yield to 3.92%. U.S. crude oil prices jumped 8.5% to USD74 per barrel amid elevated Middle East tensions.
• Moving forward, investor attention will be on key inflation reports (CPI on Thursday, PPI on Friday) and the start of 3Q earnings season on Friday, with major banks like JPMorgan, Wells Fargo, BlackRock, Bank of New York, and Fastenal set to report. The market expects S&P 500 companies to post 4.2% earnings growth for 3Q, a slight rebound from last week's 3.8% estimate but down from 7.8% earlier in the quarter, marking the fifth consecutive quarter of gains according to FactSet.
• Technically, the DJIA remains in an upward trend, holding above its key 5 and 13-week SMAs. However, with the weekly stochastic indicator still in overbought territory and RSI showing divergence, a short-term pullback may be imminent. For the bullish trend to persist, strong 3Q earnings will be crucial to support current valuations. Investors should also remain cautious of the traditional October effect, developments in the U.S. presidential election, and the ongoing Middle East conflict.
• In short, we anticipate the market to consolidate this week with downside risk, though the index is expected to remain above the critical 5-week SMA at 41,408. A renewed uptrend could emerge if the index breaks through the key resistance level of 43,406. Key immediate resistance levels to watch are 42,628 and 43,406, while support levels are 41,408 and 40,961.

Source: Kenanga Research - 7 Oct 2024