Yesterday, the Dow Jones Industrial Average Index (DIA) fell by almost 1%. It was the largest single-day decline since October 8. The uncertainty around the trade deal has impacted the equity market. Last month, the Dow Index crossed the 28,000 level on expectations of phase one of the trade deal.
Trump could hurt the Dow’s Santa Claus rally
In the latest development, President Donald Trump hinted at a delay in the trade deal until after the 2020 presidential election. Today, CNBC reported that Trump addressed this issue while attending the NATO Summit in London. He stated, “In some ways, I like the idea of waiting until after the election for the China deal, but they want to make a deal now and we will see whether or not the deal is going to be right.” He continued, “I have no deadline, no.”
In our view, this statement could concern equity investors. For a deeper look at the index’s outlook, please read Dow Jones December Outlook: A Crash or Santa Rally?
It might be possible that Beijing is not ready to move forward without the simultaneous removal of the existing tariffs. Remember, things got complicated after Beijing announced that the US should roll back a portion of existing tariffs for the trade deal. Washington denied any such plan.
After a 3.7% rise in November, the index started on a negative note this month. Please read Dow Jones: November Was Its Best Month since June to learn more.
Trade deal could take years
Even after phase one of the trade deal, it might take years to resolve all the trade disputes. Reuters reported that White House economic adviser Larry Kudlow, noted, “The stakes are so high, we have to get it right, and if that takes a decade, so be it.” Phase two and three of the trade deal might require structural reforms in China’s trade practices.
PMI could also hit the Dow
Yesterday, the ISM (Institute for Supply Management) reported November’s manufacturing PMI (purchasing managers’ index) of 48.1. The market had expected a reading of 49.4. A reading below 50 means contraction in factory activity in the US.
The report further highlighted a faster contraction in employment and new orders. Based on the index reading, US manufacturing activity contracted between August and November. The PMI is usually considered a leading indicator, and a disappointing PMI reading could drag the Dow Jones Industrial Average.
Dow could open lower
Today at 7:25 AM ET, the Dow futures lost 100 points, which indicates a lower opening. The Shanghai Composite Index rose 0.3%, while India’s Nifty 50 fell 0.4%. Plus, Japan’s Nikkei 225 fell by 0.6%.
In today’s trading activity, a mixed trend has been observed in Europe. The United Kingdom’s FTSE 100 Index and France’s CAC 40 fell 1% and 0.4%, respectively. Germany’s DAX Index rose 0.5%.
Yesterday, the Dow Jones Industrial Average fell just 0.1% below the 20-DMA (day moving average). If it decisively breaks below this support zone, we could see a short-term weakness.
Moreover, the 50-DMA at the 27,183 level would be the next important support zone for the Dow in this month. However, if the Dow also falls below the 50-DMA, then it might find support at the 200-DMA. On Tuesday, the 200-DMA was 26,500.
To learn more about the US equity indexes, please read S&P 500: Could December Outlook Be Like 2018?