Dow Jones Industrial Average (DJIA)

• U.S. markets were mixed last week, with the S&P 500 and NASDAQ down 1.0%-1.6%, while the Dow edged higher. A tech sell-off early in the week, triggered by competition concerns from Chinese AI startup DeepSeek, weighed on sentiment. However, January ended strong, with the Dow up 4%, the S&P 500 by nearly 3%, and the NASDAQ 2%. Corporate earnings exceeded expectations, with 4Q net income projected to grow 13.2% YoY - the fastest in three years. The U.S. economy expanded 2.3% in 4Q, bringing full-year 2024 GDP growth to 2.8%. The Fed kept rates unchanged, while the ECB delivered its fifth consecutive cut. Inflation remained elevated, with December's PCE rising to 2.6% and core PCE steady at 2.8%.
• Looking ahead, market volatility is expected to remain elevated as Mexico and China may announce retaliatory measures following President Trump's 25% tariffs on Canada and Mexico and 10% on Chinese goods, effective February 4. Canada has already responded with a 25% tariff on U.S. goods, raising concerns of an escalating trade war that could impact Treasury yields and equity markets. Additionally, Friday's monthly jobs report could further influence yields. On the corporate earnings front, major tech giants-including Alphabet, AMD, Arm Holdings, and Amazon - are set to report between Tuesday and Thursday, with market focus on their forward outlooks and AI-related spending guidance.
• Technically, the DJIA's weekly chart has formed a 'hanging man' pattern, while a 'bearish engulfing' pattern appears on the daily chart - both signalling a potential trend reversal. Additionally, the SmartMCDX index has surpassed the critical 15-point level threshold, historically indicating a higher likelihood of consolidation. The weekly stochastic indicator is approaching overbought territory, though the RSI remains at a moderate level.
• In short, market volatility is expected to remain elevated this week, with a downward bias. Key support levels are at 43,597 (5- week SMA) and 42,666 (13-week SMA), while resistance levels are at 45,073 and 45,705.

Source: Kenanga Research - 3 Feb 2025