Has the Dow Jones Bottomed or is There More Downside?

By Dale Gillham | Published 06 April 2020

While the Dow Jones Index ended the week down 2.7 percent last week, the good news is that it is still trading 13.25 percent higher than where it closed nine days prior on 23 March. Interestingly, on five of those past nine days to 3 April, the Dow Jones closed higher than it opened. This essentially means that the bears have eased off from selling and the Dow is currently in limbo looking for direction.

If the Dow Jones Index can hold above 20,400 points this week, we may see it trade up over the coming one to four weeks. That said, it is always wise to expect the worst and hope for the best; therefore, we need to expect that the Dow Jones may fall to 15,000 points before we can confirm the bottom of this current market crash.

During the week Oil jumped 32 percent on hopes of the Russia and Saudi oil war coming to an end. Demand for oil is down due to the Corona virus and with the Northern hemisphere coming into summer the demand for heating and other oil will see a further reduction, so a resolution may be timely.

It is expected that production cuts will occur soon, which will reduce the stockpile but when and how big the cuts will be are yet to be seen. Right now, this war is having a big impact on US oil producers, so the sooner it is over the better.

As expected, unemployment in the USA grew during March with the Bureau of Labour Statistics reporting 701,000 individuals lost their job. We need to remember that the unemployment rate has been at near historical lows for quite some time, sitting around 3.5 percent for three of the past four months. The jobless rate now sits at 4.4 percent although this is expected to rise in April.

In 2009, during the GFC, the jobless rate rose to around 10 percent before falling over the next 10 years. Given the jobless rate is coming off very low levels, there is a little room to move before there is any major impact. That said, how high the employment rate will get in the US is anyone’s guess.

This month we will see the last of the 4th Quarter earnings come out and while we can expect some interesting results, what will be most interesting is the guidance these companies have for the 1st quarter of 2020 as this may give us insights into what to expect when we start to see 1st quarter earnings come out in a few weeks.

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