Dow – Investors awaiting Fed minutes but jobs data more important

• Stocks pare gains at the start of the year
• JOLTS data points to less heat in the labor market
• Dow turns lower after a period of divergence

Stock markets are spending a second day in the red, continuing the softer start to the year as traders await minutes from the December FOMC meeting.

Given the remarkable end to 2023, it’s not particularly surprising that we’re seeing a little profit-taking at this stage. A lot has been priced in and we’re awaiting some big figures on the US labor market later in the week.

The FOMC minutes later today could provide a bit of a spark, although I’m not entirely sure what of significance we can learn from them at this stage. The dot plot told us everything we needed and the minutes will only add depth to that rather than alter the narrative.

The JOLTS data showed the trend continues to weaken in the labor market, with openings falling to 8.79 million in November. This is still well above the pre-Covid levels, reaffirming the view that despite some cracks appearing, the labor market remains very healthy. But at least they’re heading in the right direction and consistent with the Fed achieving its objective: price stability and a soft landing.

The ISM manufacturing PMI was broadly in line with expectations, improving slightly to 47.4 while remaining well below the 50 level that separates growth from contraction. The ISM prices component is arguably more interesting, potentially pointing to further disinflationary pressures from the manufacturing sector.

Has the Dow entered into a corrective pattern?

It was always going to be difficult for the Dow to sustain the rally from the last couple of months of the year, especially with momentum no longer supporting the rally.

US30 Daily

Source – OANDA

In recent weeks there had been a clear divergence between price action and the MACD and stochastic which suggested a corrective move may be on the cards. The break of the rising trendline over the first couple of sessions of the year may suggest that’s now underway.

Of course, even if that is the case, it’s hard to know how deep any correction would be. Especially after such a sharp rally that saw the index hit a new record high toward the end of 2023. There are a couple of support levels that could offer some insight into that, most notably the 20 December low around 37,083 and the prior record around 36,970. A break of these could be the next bearish signal, especially if done so on the back of a stronger US jobs report.

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