The Dow Jones Industrial Average prices the war last
- DJIA sheds close to 260 points to beneath 53,500, low in the 53,400 area.
- The 30-year Treasury yield tops 5.31%, its highest in 19 years.
- Crude Oil roughly 3% higher as the 60-day US-Iran framework expires.
The Dow Jones Industrial Average gave up close to 260 points to beneath 53,500, roughly half a percent lower, on the day the 60-day negotiating window meant to end the war over the Strait of Hormuz expired with nothing agreed to replace it. For a second consecutive session the highest print of the day was the opening print, and the low in the 53,400 area arrived in the final hours as the long end of the Treasury curve pushed to a 19-year high.
The deadline passed with nothing behind it
A senior Iranian official told Reuters the country may move from a defensive policy to an offensive one should diplomacy fail, escalating both in the Strait and across the wider region, and the Revolutionary Guard restated that no vessel passes without Iranian permission and that the waterway reopens only once Tehran's conditions are met. Three vessels crossed on Sunday against a five-day average of 12 and roughly 130 a day before the war.
Tehran's foreign ministry argues the two-month window was never written into the text and that the date carries no particular significance, which is a strange thing to insist on with transit counts at those levels. Trump has told Oman, the only live channel left, that getting in the way would be answered with bombing. Crude Oil added roughly 3%, with West Texas Intermediate (WTI) above the $83.00 handle and Brent above the $88.00 handle.
The war trade is fully priced, just not here
Three large American refiners trade at or near record levels, Valero (VLO) at an all-time high, Marathon Petroleum (MPC) at its best since its 2011 separation and Phillips 66 (PSX) at a record since listing. Valero and Marathon Petroleum have more than doubled this year and Phillips 66 is up roughly 85%, on diesel margins running near $100 a barrel as Ukrainian strikes take Russian refining offline and Gulf capacity stays blocked in behind the chokepoint.
Not one of the three sits in this index. The only energy name among the thirty is Chevron (CVX), an integrated major whose refining arm is a segment inside a business that also owns the barrels going in. The cleanest equity expression of a five-month supply war is being paid out in full on the American tape, and the Dow Jones Industrial Average is not a shareholder in it.
The long end did the pricing first
The 30-year Treasury yield topped 5.31%, more than four basis points higher and the highest since June 2007, with the 10-year above 4.72% and even the two-year a basis point firmer, so the whole curve moved on an inflation read rather than on a growth scare. A refining margin near $100 a barrel is an inflation input with a delivery lag rather than an energy windfall, because diesel is the price of freight, farm equipment and every good that moves by truck.
The day's data corroborated the direction and was ignored for most of the session. The Empire State manufacturing survey printed 20.6 against an 11 consensus and 15.6 in July, the strongest reading in more than four years, with unfilled orders up ten points to 15.5 and prices paid rising while prices received fell. Futures spent the previous week taking September hike odds from a coin flip on August 10 to roughly a third, a repricing the long end has now declined to ratify.
The week answers back
The Federal Open Market Committee (FOMC) publishes minutes from the July 29 meeting on Wednesday at 18:00 GMT, an account of a 9-3 hold argued before the soft inflation prints, before the retail sales miss and before this session's manufacturing beat, so the record of the debate lands after the data that moved it. Friday's preliminary August Purchasing Managers Index (PMI) readings carry the same red band, manufacturing seen at 53.8 from 53.9 and services at 54 from 54.6.
Tuesday stacks the housing file, with building permits at 1.37 million against 1.374 million and housing starts at 1.35 million from 1.427 million at 12:30 GMT, industrial production 0.3% from 0.1% at 13:15 and pending home sales 0.2% from -5.4% at 14:00. Thursday brings initial claims at 212K against 209K and a Philadelphia Fed survey seen at 25 from 41.4. Home Depot (HD) reports Tuesday and Walmart (WMT) Thursday, giving the consumer who missed last week a second hearing from inside the index.
Dow Jones Industrial Average technical levels
Resistance: The 53,500 area is the immediate cap, having been surrendered on the session, with the broken 53,800 floor above it and then 53,900 and the early-August ledge near 54,100, the record standing just short of 54,750.
Support: The 53,400 area is the session floor and the line that decides the week. Beneath it sit the 53,200 area and then 53,000, with the 50-day Exponential Moving Average (EMA) near 52,400 the deeper defence.
Bias: Bearish. A daily range near 380 points against 200 the session before ends the compression to the downside, and a daily Stochastic Relative Strength Index (Stoch RSI) near 76 sitting in its upper band while the index makes lower highs and lower lows is momentum that price has already refused. Invalidation on a daily close back above 53,800.
Dow Jones daily chart
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
