Dow Jones Industrial Average posts a modest gain as funds flow out of tech stocks

Can DJIA Stay Above Friday's Close After Surrendering About Two-Thirds of Its Rally?
Gains are led by Sherwin-Williams and Home Depot as Iran developments send Crude Oil down over 7%.
Tuesday brings the midterms, followed by October payrolls on Friday.

A shift from technology shares into industrial and retail stocks lifted the Dow Jones Industrial Average, although much of the advance has since faded. The rotation followed Oracle's (ORCL) filing to raise $20 billion for artificial intelligence (AI). Having advanced from just above 51,800 to just short of 52,500, the index surrendered about two-thirds of the rise to trade just above 52,000. Trading throughout the session has remained within Friday's range.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Despite the sharpest monthly fall in construction spending since April 2020, driven largely by housing, Sherwin-Williams (SHW) gained 5.6% and Home Depot (HD) added 3.3% on the day. Funding and deal developments sent Oracle, Marvell (MRVL) and Lumentum (LITE) down 6%-18%; none belongs to the Dow. Losses were smaller among the index's technology constituents: Nvidia (NVDA) slipped about 0.5%, while Apple (AAPL) declined 2% ahead of its results.

President Trump's statement that he was in no rush to resume the war with Iran was followed by a fall of more than 7% in Crude Oil. At 55.5, the Institute for Supply Management (ISM) factory index exceeded the 54.6 forecast, while its prices index eased to 75.2. Against a backdrop of expanding orders and lower fuel costs, Dow manufacturers Honeywell (HON), 3M (MMM) and Boeing (BA) all gained more than 2%.

Which Upcoming Releases Could Influence the Dow?

Demand for the industrial and retail shares driving the Dow's advance will be in focus across the upcoming releases. September job openings are scheduled for Tuesday at 15:00 GMT, followed on Wednesday at 15:00 GMT by the ISM services index, which is forecast at 54.8 versus the previous 54.9. Friday's October nonfarm payrolls release is due at 13:30 GMT, with a forecast of 65K compared with 29K previously. The unemployment rate is expected to remain at 4.2%.

What Do the Dow's Charts Indicate?

After spending two weeks in overbought territory, daily momentum has now moved out of it. The index has retraced more than a third of the advance from its 1 October low just above 50,500 to its late-October high near 52,900. Its current level is slightly below the 50-day Exponential Moving Average (EMA), around 52,100, but comfortably above the 200-day EMA near 50,750.

Dow Jones: 5-minute chart

Dow Jones: daily chart

Dow Jones: Key Questions Answered

What does the Dow Jones measure?

Comprising 30 of the most actively traded US stocks, the Dow Jones Industrial Average ranks among the world's oldest stock market indices. Weightings are based on share prices rather than market capitalisation: the constituent prices are added together and divided by a factor that currently stands at 0.152. Its founder, Charles Dow, also established the Wall Street Journal. In subsequent years, critics have questioned how broadly it represents the market, since it tracks only 30 conglomerates rather than the wider coverage offered by indices such as the S&P 500.

What drives movements in the Dow Jones Industrial Average?

The combined performance of its constituent companies, as reported in their quarterly earnings, is the principal driver of the Dow Jones Industrial Average (DJIA). Investor sentiment also responds to US and global macroeconomic releases, making these another influence on the index. Interest rates determined by the Federal Reserve (Fed) affect borrowing costs and, in turn, the DJIA, given many corporations' heavy dependence on credit. Inflation and other indicators that shape Fed decisions can therefore be significant drivers too.

How does Dow Theory identify market trends?

Developed by Charles Dow, Dow Theory seeks to identify the stock market's primary trend. It calls for comparing the direction of the Dow Jones Industrial Average (DJIA) with that of the Dow Jones Transportation Average (DJTA), and following a trend only when both move in the same direction. Trading volume serves as confirmation, while analysis of peaks and troughs also forms part of the approach. The theory describes three phases of a trend: accumulation, as smart money begins buying or selling; public participation, as the broader public joins the move; and distribution, as smart money withdraws.

Which instruments offer ways to trade the DJIA?

Investors can access the DJIA through several instruments. ETFs offer a way to trade it as one security without purchasing shares in each of its 30 constituent companies; the SPDR Dow Jones Industrial Average ETF (DIA) is a prominent example. Futures contracts on the DJIA allow speculation on the index's future value. Options, by contrast, confer the right, without an obligation, to buy or sell the index at a predetermined price on a future date. Through mutual funds, investors can purchase a share of a diversified portfolio of DJIA stocks, gaining exposure to the index as a whole.