The Dow Jones hit its highest level since the start of August as US and Chinese officials agreed to resume trade talks in the coming weeks. Elsewhere, the Fed chair took a risk-averse approach after disappointing job numbers.
Why the Dow Jones is interesting right now
August saw a contraction in the US manufacturing sector as the ISM manufacturing PMI declined to 49.1%. The lowest reading in more than 3 years.
The contraction ended a 35-month expansion period, and the PMI indicates that manufacturing was a drag on the wider economy. A drag that has subsequently been reflected in the Dow Jones, and US indices at large.
Number of months the US manufacturing sector was in expansion, prior to last month's contraction
Other factors causing concern are the start of tariffs on $112 billion of imported Chinese goods as part of the US-China trade war. Previously manufacturers have been a big winner under the Trump administration. Yet the ongoing trade spat has softened global exports and muted gains over the past couple of months.
What happened last week
Despite the economic tension, the index managed to end last week up 2.5%. Reassuring investors was news that the US and China will meet “sometime in October” to discuss the trade war. This saw the Dow hit 26,710 on Thursday, its highest level since 1 August. For the year, the Dow Jones is up 14.8%.
Also helping the market grind higher on Friday was Federal Reserve Chair Jerome Powell. The Fed chair put paid to recession fears and stressed the need for risk management in an era of global uncertainty.
Dow Jones YTD gain
Powell’s comments came amid disappointing jobs data that showed only 130,000 jobs were added in August – seeing the slowdown complete a third straight month.
Intel was up 1.64% at Friday's close following optimism on the latest round of talks between US and Chinese diplomats. On Yahoo Finance, analysts have a 53.13 price target on the stock. Hitting this would represent a 2.2% upside on the current share price.
Home Depot's stock popped 1.3% higher on Friday as traders continued to back the stock. Strong earnings results, product innovation and increased efficiencies have made this one to watch for many investors. So far this year the stock is up 34%. Yet Home Depot carries a 23.06X price-to-earnings multiple and an average price target of $225.18 - 2.7% below the current share price.
Exxon Mobil Corp
Exxon Mobil benefitted from a bullish report from the EIA last week that showed inventories were down 4.8 million barrels in the week ending 30 August. This helped Exxon close Friday's trading session up 0.9%.
And although Exxon shares are up 1.78% so far this year, they are currently trading well below a 52-week high of 86.51. Redburn’s double-downgrading of the stock to ‘Sell’ on Friday won't have done wider trader sentiment any favours.
Microsoft slipped 0.7% on Friday as rival Slack claimed enterprise clients running Office 365 were choosing its messaging service over Microsoft Teams. Still the tech mainstay is currently up 37.56% this year as its cloud business continues to be a money maker. Among analysts, Microsoft has a price target of $154.41, which would represent a 11.9% upside if hit.
Walmart dropped 0.6% on Friday in the same week it announced it would stop selling several lines from its firearms and ammunition range. Walmart is the US's largest retailer and the biggest seller of firearms in the country. It's been a stellar year for Walmart in 2019, with the share price up over 23% as it continues to successfully break into the ecommerce space.
While American Express dipped 0.4% on Friday's trading, the stock is still up 23% in 2019. Zacks expects more growth this year based on the company's strong fundamentals and steady increase in customer engagement. Analysts tracking the stock on Yahoo Finance have an average price target of $132.6. Hitting this would represent a 9.8% upside on the current share price.
What to look out for next week
On the macroeconomic front, watch out for August’s CPI numbers on Wednesday and the latest retail sales numbers on Friday; along with the PMI numbers, they should provide a rounded view on how the US economy is doing - and what we can expect for the Dow in the mid- to short-term.
On the technical side of things, Dailyfx suggests the first resistance level to watch for should be around the 27,000 level. From there look for subsequent resistance at the 27,400 level. Support comes in around the 26,400 level.