Dow Jones Industrial Average Forecast: DJIA gives up initial advance following CPI data
- The Dow Jones Industrial Index lost 0.75% last week.
- WTI Oil is nearing $90 on Wednesday after advancing over 1.5% the previous day.
- US Treasury yields rise even more heavily for longer maturities.
- US CPI shows core inflation creeping higher than expected in August.
- Arm IPO should usher in market excitement this week.
The Dow Jones Industrial Average (DJIA) has drifted 0.1% one hour into Wednesday’s session, seemingly confused about its direction. Similar to the previous two session this week, there was an attempt to push the market higher in the first half hour, but the 30-stock index sold off after 10:00AM EST.
Before the bell, the US Consumer Price Index (CPI) for August showed slightly higher inflation levels than expected. The ever-important monthly core reading showed inflation rising 0.3% from July rather than the 0.2% reading expected. Also the annualized headline inflation figure of 3.7% was just a hair above the 3.6% consensus number.
The index has been unable to hold onto its rallies so far this week as both Monday and Tuesday witnessed impressive advances give back most of the gains in the afternoon sessions. Oil prices have extended their rally, with WTI having nearly reached $90.
The Arm IPO, which prices on Wednesday but begins trading on Thursday, could lead to an uptick in positive sentiment for the entire equity market as it is reported to be oversubscribed.
Dow Jones News: CPI to set tone for September
The CME Group’s FedWatch Tool gives a 93% chance that the Federal Reserve will keep interest rates flat at its September 20 meeting next Wednesday. The only thing that could change that would be if the August CPI came in hot enough that the central bank determines more tightening is necessary to ensure that inflation does not pick back up.
Inflation did arrive above the consensus forecast early Wednesday, but it was not alarming. The most important reading was the core monthly figure showing 0.3% growth from July to August. Consensus had be 0.2% just like July’s reading. However, YoY core inflation was reported as expected at 4.3%, down from the previous month’s 4.7%. And despite the annualized headline rate jumping from 3.2% to 3.7%, mostly due to the recent OPEC+ caused rally in worldwide Oil prices, the monthly change arrived at 0.6% as expected.
This August CPI print is not what everyone calling for a soft landing wanted, but it is not exactly alarming. Higher fuel prices will certainly work their way into more goods and services over the last few months of the year. Oil prices have jumped 10% in just the past two weeks but have been on a steady advance since the summer. Then just last week, Saudi Arabia and Russia both extended previously announced cuts to supply, which helped the Oil price rise even further. WTI is trading at $89 at the time of writing.
Oversubscribed Arm Holdings IPO could lead to September tech rally
There appears to be plenty of excitement over the Arm Holdings IPO. The UK company that licenses semiconductor designs found in nearly all smartphones will price on Wednesday and begin trading on Thursday.
Arm is currently entirely owned by Japan’s SoftBank (SFTBY), which wishes to sell about 10% of the company. Initially, Arm floated a range of $47 to $51 a share, which would value itself between $50 billion and $54 billion. The circa $5 billion offering, however, was wholly purchased on its first day after being oversubscribed by Wall Street banks’ clients, and the rumor is that it will be priced toward the top of the range.
Additionally, a large group of Arm’s customers – including Taiwan Semiconductor (TSMC), Apple (AAPL), Alphabet (GOOGL), Advanced Micro Devices (AMD), Nvidia (NVDA), Intel (INTC) and Samsung (SSNLF) – are purchasing approximately $735 million of the offering.
CEO Rene Haas has been making the rounds and has reportedly claimed that Arm will grow revenue in the high teens for the next several years. The strong demand the IPO has received could easily translate on Thursday into a euphoric rally as the retail crowd attempts to take its own bite.
Semiconductor stocks FAQs
A semiconductor is a term for various types of computer chips. Officially called semiconductor devices, these computer chips rely on semiconductor materials like silicon and gallium arsenide to process the electrical current that produces the modern world of computing. They come in many shapes, sizes, enhancements and configurations such as diodes, transistors and integrated circuits to more complicated applications like DRAM memory, simple processors and even GPUs.
First, there are the pure chip designers, such as Nvidia, AMD, Broadcom and Qualcomm. These companies use sophisticated software to design and test chips. Second, there are the equipment manufacturers that provide the machines necessary to build computer chips. These include ASML and Lam Research. Then, there are foundries that manufacture the chips. These include Taiwan Semiconductor and GlobalFoundries. Last of all are the integrated device manufacturers who design their own chips and additionally manufacture themselves. These include Samsung and Intel.
It is the observation that the number of transistors in an integrated circuit doubles every two years. The “law” is named after Gordon Moore, who founded Fairchild Semiconductor and later Intel. The doubling is possible due to the shrinking size of process nodes or parts in the computer chip. In 1971 the advanced commercial manufacturing had reached 10 microns in width. In 1987 semiconductor technology had advanced to 800 nanometers in width. By 1999, this process had moved to 180 nanometers. By 2007, the size had dropped to 32 nanometers, and this fell all the way to 3 nanometers in 2022, which is close to the size of human DNA.
In 2022, the global semiconductor industry had revenues just under $600 billion. In total, the industry shipped 1.15 trillion semiconductor units in 2021. The leading nations involved in the semiconductor supply chain are Taiwan, the United States, China, the Netherlands, South Korea, Japan and Israel.
Dow Jones Industrial Average forecast
The primary takeaway from the daily candlestick chart shown below is that Monday and Tuesday both experienced impressive rallies that both dissipated. The long top wicks below look similar to the three sessions between August 30 and September 1, which ended up foreshadowing a mild pullback in the Dow index.
If the Dow index begins trading further below the 34,600 level, then it may be time to bail. Support comes in at the bottom of that resistance-turned-support range at 34,250 and then beneath there at 34,029.
Bulls will look at how the short-term range low on September 6 amounted to a higher low than the August 25 range low. In other words, this is a bullish sign. The Dow index appears to be closing in line with the 21-day Simple Moving Average (SMA) over recent sessions, so bulls will need to close above there in order to demonstrate their power. That move would allow another run at the 35,200 to 35,750 supply zone.
Dow Jones Industrial Average daily chart