Will the indices continue to decline as risk aversion persists on Wall Street? – London Business News | Londonlovesbusiness.com

The Dow Jones Index (US30) is under increasing pressure due to the decline of major tech stocks and rising U.S. Treasury yields.

The index fell over 200 points, reflecting, in my view, a growing sense of unease among investors. This is particularly apparent after the recent losses in tech stocks like Microsoft and Meta, which saw declines of 5.37% and 4%, respectively.

These declines are attributed to disappointing guidance from these companies, which has reduced investor appetite for risk and raised concerns about the stability of U.S. stock markets in the near term.

In my opinion, rising Treasury yields are crucial in amplifying selling pressure on stocks, as they make fixed-income investments more attractive compared to growth stocks, especially in the tech sector, which relies heavily on future profit projections.

Ten-year Treasury yields reached 4.333% during the session, further straining stocks and increasing market volatility. This increase in yields reflects the market’s absorption of monetary policy expectations, with the Federal Reserve seemingly hesitant to ease policy at this time, given the ongoing strength in employment data and a modest decrease in inflation.

Additionally, the Chicago Board Options Exchange’s Volatility Index (VIX) rose more than 11%, reaching levels above 22.67, reflecting a cautious sentiment among investors ahead of the U.S. presidential election. This spike in the VIX indicates anticipated market volatility, as the U.S. election is a major source of uncertainty, especially amid economic and political tensions. I expect markets to experience further unexpected shifts leading up to the election, which could drive investors toward hedging strategies and risk reduction.

Comments from financial analysts, such as Quincy Crosby of LPL Financial, suggest that the market is generally disappointed with major tech companies’ results. This negative shift in investor sentiment may continue if disappointing guidance from large-cap tech firms persists. Given these companies’ significant impact on the index, their downturn magnifies broader market weakness, especially as cautious attitudes and potential volatility increase with the approaching political milestones.

Despite the notable drop in the Personal Consumption Expenditures (PCE) Price Index to 2.1% year-over-year in October, one of the Fed’s preferred inflation indicators, this slowdown was not enough to change market expectations about monetary policy. Additional data, such as the drop in initial jobless claims to a five-month low, demonstrate that the U.S. economy continues to show signs of strength, which increases the likelihood of interest rates remaining elevated for longer. It is worth noting that the market’s expectations for a rate cut dropped from 97% to 95%, reflecting investor uncertainty regarding the near-term policy direction.

Given these factors, the Dow Jones and U.S. stock markets are cautious, waiting for upcoming data and political events. The index’s current movements are not merely a temporary drop but could signal a deeper correction if the pressure factors persist. Investors now face the dilemma of maintaining their positions in high-yield growth stocks versus shifting towards safe investments like U.S. Treasuries, which offer competitive returns, especially with global interest rates on the rise.

In conclusion, it appears that the Dow Jones Index will remain unstable in the short term, driven by inflation indicators, Federal Reserve trends, geopolitical factors, and the upcoming election results. The optimal approach for investors during this period may be to hedge and reduce risks, focusing on support and resistance levels as benchmarks for future buy and sell decisions.

The Dow Jones Index has fallen below 42,000 points, extending its losses to 41,692, which is below the 50-day Simple Moving Average (SMA) of 41,928. If the bears push the Dow Jones further below the 50-day SMA, I anticipate additional losses, with a potential test of the September 2 high, which has now turned into support at 41,564. Should this level be breached, traders may look to test the 41,000 mark, just ahead of the 100-day SMA at 40,856.

Conversely, if buyers reclaim the 42,000 level, the Dow could test the October 30 low, which has turned into resistance at 42,122. Once surpassed, the next target would be the October 31 high at 42,460.

If the Dow Jones extends its losses below 42,000, initial support is likely at 41,500. Momentum has turned bearish, even though the Relative Strength Index (RSI) is still near the midpoint. However, it is pointing downward, accelerating past its neutral line.

Looking at the Dow’s technical support and resistance levels, key support lies at 41,564, with additional support provided by the 100-day Simple Moving Average at 40,856. These levels will be crucial in determining the index’s direction in the near term, especially if current pressures persist.

On the other hand, resistance levels are at 42,122 and the October 31 high of 42,460. Therefore, a break below support could indicate a further decline, while a breach above resistance may open the path for the index to regain some of its gains.

Support levels: 41,949 – 41,683 – 41,331

Resistance levels: 42,081 – 42,300 – 42,524