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Dow Jones Index: Record Highs or a Q4 Crash?

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The Dow Jones Industrial Average Index is just 2% away from its all-time high. The index continues to look strong. Along with US-China trade talks, corporate third-quarter earnings will pave the way in the short term. Management’s commentary for the fourth quarter and beyond could be an important indicator for the markets this earnings season. The Fed’s policy actions and developments related to Brexit might also impact broader US markets in the fourth quarter.

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What could aid or dent the Dow Jones’ rally?

So far, the Dow Jones Index (DIA) has risen more than 15% this year. Apple (AAPL) and Microsoft (MSFT) are some of the top-gaining stocks from the index with approximately 50% and 36% YTD gains, respectively.

Recently, Apple stock trended higher after brokerages looked upbeat before its earnings. Raymond James increased its target price from $250 to $280. CFRA also raised its target price from $240 to $265 with a “buy” rating today. Continued momentum in the stock could push the Dow Jones to new highs. Apple forms almost 6% in the index. The company will release its quarterly earnings on October 31. Read Will Apple Stock Reach $250 after Its Earnings? to learn more. Apple is Berkshire Hathaway’s largest holding, according to its second-quarter 13F. Warren Buffett, Berkshire Hathaway’s chairman, sees Apple as a consumer product company and not a technology company.

Boeing (BA), another big component of the Dow Jones, has lost more than 11% in the last five days. The company’s 737 MAX 8 issues don’t seem to be easing. The stock continues to look weak, which could weigh on the index. Boeing’s expected earnings also paint a gloomy picture. However, despite all of these negatives, the stock might see a trend reversal. Boeing stock is trading at record oversold levels with its RSI (relative strength index) at 13. The corporate earnings growth in the third quarter could have a negative impact on broad indexes’ record run. According to a FactSet report on Monday, the S&P 500 (SPY) reported a decline of 4.7% in earnings compared to the same quarter last year. So far, the S&P 500 has risen about 20% this year.

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Trade talks

Favorable developments on the trade talks front could lift the markets. According to Chinese Vice Foreign Minister Le Yucheng, China and the US made some progress on the trade settlement, as noted in a CNBC report today. The two economic giants have been working on a trade deal for a long time. However, they haven’t reached a concrete solution.

The US and China are started to face consequences from the tariffs and counter-tariffs in the last few months. In the third quarter, China’s GDP growth rate fell to 6% from 6.2% in the previous quarter. The IMF warned that China’s growth rate could fall below 6% next year. Also, US economic indicators aren’t very encouraging. The ISM reported the manufacturing PMI at 47.8% in September—the lowest level since 2009. Notably, President Trump might try harder to get complete the deal before the presidential election next year.

Interest rate cuts

President Trump has been vocal about his stance on interest rates. He even demanded that the Fed cut rates to zero or even lower. The Fed has already cut rates twice this year. According to the CME Group’s FedWatch tool, traders expect more than a 93% probability of another quarter-point cut in its meeting on October 29. A rate cut could bring short-term relief to markets. However, a rate cut probably wouldn’t be enough to tackle bigger problems like geopolitical tension and the global slowdown.

Amid the trade war chaos and the ongoing earnings season, we’ll have to see whether the Dow Jones makes new highs or falls from the top. Read Will the Dow Jones Crash by the end of 2019? to learn more.

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