Stock Market Outlook:
- The Dow Jones was the only US index to close in the red on Tuesday, but closed well off intraday lows
- Levi Strauss (LEVI) missed earnings expectations, but did not highlight trade war headwinds
- Why is earnings season important and what does it mean for the Dow Jones? Read our earnings season guide here to learn more
Stock Market Outlook: Dow Jones Wades Above Support, Levi Misses
US stocks gapped lower at the open as time winds down to the release of the FOMC meeting minutes. With market expectations undeniably dovish, the language and conviction reflected in the meeting transcript will offer further insight to market participants on the pace or likelihood of future cuts to the Federal Funds rate. Trading narrowly above support and slightly beneath record highs, the Dow Jones Industrial Average finds itself at a pivotal junction.
Dow Jones Price Chart: 4 - Hour Time Frame (April - July) (Chart 1)
From a technical perspective, the Dow Jones enjoys nearby horizontal support around 26,705 – marked by the highs in April and May. Slightly beneath, an ascending trendline from February will look to exert its own influence on the Index. Although the line has been broken, it continues to command respect evidenced by price action in June and July. If the meeting minutes have a decidedly hawkish tone, the Average may look to the band of support starting at 26,280 for supplemental buoyancy.
That said, the path of least resistance for the Dow is to continue its trend higher. Barriers to the topside are sparse, marked only by October 2018 highs around 26,957 and recent record highs at 27,000. Further, the Federal Reserve has expressed a willingness to deliver dovish policy and meet market expectations which have been bolstered by muted inflation.
Levi and Pepsi Split on Earnings
Alongside Federal Reserve commentary, US indices will digest earnings from Levi Strauss (LEVI). The iconic American brand missed even the market’s lowest expectations – sending shares 5% lower in after-hours trading. Despite the reaction in share price, the company did not highlight trade war headwinds in its report, instead attributing the miss to lingering IPO costs.
The Third Quarter has arrived and so have Q3 Equity, Gold, and US Dollar Forecasts.
Earlier in the session, Pepsi (PEP) delivered their own earnings report and delivered encouraging results for the quarter to come. Still, traders were unimpressed and pressured shares to the support I highlighted in yesterday’s PEP earnings outlook. Strong Mountain Dew sales were a bright spot for the pop producer as the company attempts to capitalize on a young demographic.
While both companies traded lower following their respective results, their relative size and importance to the underlying Indices on which they trade – coupled with the heightened event risk on Wednesday – will likely do little to pressure the Dow Jones or S&P 500 moving forward. With that in mind, next week marks the advent of earnings season with a litany of high-profile corporations due to report. These larger and widely-watched stocks are more likely to singlehandedly influence a trading session. As earnings season progresses, sign up for my “Earnings Season Ride Along” webinar for specific company insight and broad overviews of US equities during the season.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX