The Dow Jones Industrial Average has a term premium problem
A quarter-point Federal Reserve increase by December stopped being a certainty over the past eight days, and the Dow Jones Industrial Average is lower for it. Spot trades near 53,400, down roughly 105 points on the session and about 2.5% beneath the record just short of 54,750 set on August 5.
The Dow Jones Industrial Average is exhibiting a term premium issue, as the market grinds lower after a record high. The Federal Reserve's recent decision to increase interest rates by a quarter point has led to a drop in the index, which is now trading near 53,400, down about 2.5% from its August 5 record. The term premium, which is the compensation demanded for owning duration, is widening, and this is a price rather than a forecast.
The thirty-year Treasury yield is at its highest level since June 2007, while the market has been removing Fed tightening rather than adding it. Builders are showing optionality by purchasing housing permits despite not intending to exercise them. Home Depot, a housing retailer, is up around 1% due to a second-quarter earnings beat, but this is not enough to offset the overall loss in the index.
Crude oil prices have risen above $85.00, adding to the energy price that term premium charges. The next major data releases include initial jobless claims, the Philadelphia Fed manufacturing survey, and the preliminary August Purchasing Managers Index readings. The Dow Jones Industrial Average is bearish, with resistance at the 53,500 area and support at 53,250, with the rising 50-day Exponential Moving Average beneath it.
Written by urgent.news from FXStreet's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
