Dow 30: Breaches 37K after FOMC dovish dot plot

FOMC hold with a dovish twist

The holdout of the Federal Open Market Committee (FOMC) came as no surprise, with market pricing anticipating that the federal funds rate wouldn't budge from the current 5.25-5.5% range. However, market participants were more interested in the dot plot. It revealed three rate cuts in ’24, up from the previous two. Given the adjustment from a lower level compared to September's forecasts (as the last rate hike never occurred), it lowered the forecast to 4.6% from 5.1%.

Market pricing (CME’s FedWatch) has become even more optimistic about rate cuts in terms of both timing and extent. The majority expects the first cut in March, aiming for five, with a sixth almost a coin toss by December of next year. Other elements of the event were also dovish. The statement was tweaked to incorporate an easing of inflation, combined with the addition of "any" to signal a cautious approach to further tightening. During the subsequent press conference, Fed Chairman Powell commented on the "very good news" of inflation easing "without a significant increase in unemployment."

Treasury yields finished notably lower, both nominally and in real terms, providing a boost for equities, particularly with bond proxies outperforming.

US data an added plus

Regarding the release of US economic data yesterday, the Producer Price Index (PPI) for November was lighter than anticipated, providing a positive development on the pricing front with no month-on-month change for both headline and core figures. Additionally, mortgage applications were up by 7.4% and are expected to rise further as mortgage rates decline. Retail sales, claims, and trade pricing data are up next, and tomorrow we will receive preliminary Purchasing Managers’ Index (PMI) and industrial production figures.

Dow Technical analysis, overview, strategies, and levels

Price gains that were both strong and notable given the moves took it past 37,000, easily getting past Wednesday’s first and second resistance levels, favoring conformist buy-breakout strategies heavily (and already hovering above today's first resistance as of writing this morning). It’s also near this week’s weekly second resistance level, there too conformist buy-breakouts winning out in the longer-term time frame given the technical overview there matches as ‘bull average’.

IG client* and CoT** sentiment for the Dow

As for sentiment, retail traders haven’t raised their sell bias from the current extreme short of 81%, following the latest price gains, opting not to initiate as much with recent IG client sentiment data showing fresh buys winning out. CoT speculator data is from last Friday, where they shifted from heavy sell 68% to the middle prior.

Dow chart with retail and institutional sentiment

• _{*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from the previous trading day.}
• _{**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.}