After surging on Friday, the Dow Jones (DIA) is just 50-odd points away from its all-time high. Better-than-expected jobs and GDP reports have boosted market sentiment, compensating for last week’s worrisome manufacturing PMI data. The Dow Jones and S&P 500 surged 1.4% each last week. Interestingly, Dow Jones futures seem to be headed for a strong opening today, which might take them to a record high.
Trade talks back in focus
After the release of a streak of quarterly earnings and economic indicator data last week, markets are now watching for trade war developments. The China and US look poised for an interim trade deal. On Friday, Reuters reported that US Commerce Secretary Wilbur Ross thinks the trade deal’s first phase is in good shape and an agreement is likely to be signed by mid-November.
Donald Trump and his counterpart, Xi Jinping, were expected to arrive at an interim settlement at the Asia-Pacific Economic Cooperation summit in Chile, but the event was canceled due to mass protests. Although both parties see the agreement as a big positive, its comprehensiveness remains to be seen. Last week, Chinese officials said that they doubted the trade deal’s longevity.
Strong jobs report lifts the Dow Jones
The ISM (Institute for Supply Management) services PMI is set to be released tomorrow. Services PMI data missed analysts’ expectations in September, coming in at 52.6%. According to MarketWatch, analysts expect October’s PMI to be around 53.8%.
The ISM manufacturing PMI yet again warned of a possible economic downturn when last week’s data release for October revealed a third consecutive month of contraction. The manufacturing PMI is a leading indicator of economic growth. Trade war tensions and the global slowdown have impacted corporate sentiment and investment decisions.
Despite the gloomy manufacturing data released on Friday, the Dow Jones has kept its momentum due to a strong jobs report. October non-farm payrolls rose by 128,000, well above analysts’ estimates. The increase came despite the workers’ strike at General Motors (GM). Unemployment rose marginally from the month prior, to 3.6% from 3.5%. The strong jobs report may have soothed investors.
Dow Jones overbought
This year, the Dow Jones has risen more than 17%, while the S&P 500 (SPY) has soared 22%. Last week’s strength pushed the Dow Jones’s 14-day RSI (relative strength index) score above 70, into the overbought zone. The S&P 500 was also trading in the overbought zone on Friday, with an RSI score of 75.
The tech sector’s quarterly earnings reports have been mixed this season. Apple (APPL), Facebook (FB), and Microsoft (MSFT) beat analysts’ estimates for the quarter, while Alphabet (GOOGL) and Amazon (AMZN) disappointed investors. Apple and Microsoft have largely boosted markets, up almost 65% and 42% this year, respectively. Amazon and Alphabet have surged more than 20% each.
For several months now, manufacturing data has been weakening, and GDP data and jobs reports have stayed strong. We’ll soon see whether the Dow Jones can keep its momentum and reach a new high.