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Why Dow Jones Will Face a Moment of Truth This Week

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The Fed’s policy meeting will be the markets’ main focus today. While a quarter-point rate cut seems to be on the table, the committee’s stance on the future course of action will be vital. The widely expected rate cut could boost the markets to record highs. However, there are bigger concerns like the global slowdown and recession fears. So far, the Dow Jones Index (DIA) has risen 16% this year. The index is just one percent away from its all-time high. Currently, the S&P 500 (SPY) is trading at record highs. So far, SPY has risen about 20% YTD.

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Will the Fed push Dow Jones to record highs?

If the Fed trims interest rates today, it will be the third consecutive rate cut after July and September this year. A rate cut would bring the federal funds rate range to 1.50%–1.75%. According to the CNBC Fed Survey, almost 80% of the 43 respondents think that the Fed will cut rates today. The respondents in the survey included fund managers, economists, and strategists.

A quarter-point cut already seems to be priced in the markets. The commission’s stance on future interest rate policy will be an important indicator for markets. An indication of pausing the rate cuts might upset the mood on Wall Street.

Manufacturing PMI data

Even if the Fed’s decision boosts the Dow Jones and S&P 500 today, the jobs report and manufacturing data are the next big hurdles. The ISM manufacturing PMI will be released on Friday. Recently, the ISM manufacturing PMI painted a gloomy picture for the future. The PMI was 47.8% in September—down from 49.1% in August. A PMI reading above 50 indicates expansion, while a reading below 50 indicates a contraction. Notably, the Dow Jones Index and the S&P 500 Index fell after the September manufacturing data.

The United Auto Workers’ strike at General Motors (GM) could weigh on manufacturing data. The strike might have a negative impact on the already declining PMI. To learn more, read GM Stock Up on Better-than-Expected Q3 Earnings.

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Other countries also have disappointing manufacturing data. In Europe and China, the manufacturing data points to a severe slowdown, which is even more concerning. Europe’s manufacturing PMI fell to 45.7% in September. The data hit almost a seven-year low. Notably, the data was 47% in August. China’s manufacturing PMI was 49.8% in September, which indicates a contraction.

Big earnings could weigh on the Dow Jones

Tech giants that reported their quarterly numbers this week include Facebook (FB) and Apple (APPL). So far, Apple stock has risen more than 55% this year. The stock led the gains among the top tech companies. If Apple reports better-than-expected earnings on Thursday, it would boost the broad market indexes. The stock forms more than 6% in the Dow Jones Index and approximately 4% in the S&P 500. To learn more about the company’s earnings, read Why Apple’s Q4 Earnings Will Be Unique.

Facebook will release its quarterly earnings today after the markets close. The stock has risen more than 44% YTD. The company has beat analysts’ EPS estimates for more than 12 quarters. Facebook forms almost 2% in the S&P 500 Index.

Investors are concerned before these tech titans report their earnings. Recently, Alphabet (GOOGL) and Amazon (AMZN) missed their earnings estimates. Amazon even issued lower sales guidance for the holiday season, which made investors anxious. The bottom-line numbers and management’s commentary on the challenging environment ahead will be crucial. Read Amazon Stock Survived an Earnings Miss—What Next? to learn more.

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