Dow Jones Industrial Average keeps sliding as yields climb on a strong PMI

The strongest S&P Global flash Purchasing Managers Index (PMI) readings since 2021 have done nothing for the Dow Jones Industrial Average. Manufacturing came in at 57 against a 53.5 forecast and services at 58.7 against 56. The index trades near 51,500 with about two-thirds of its June-to-August rally gone. Its 30 companies sell into the economy the survey describes, and the index is worth less on news that the economy is growing faster.

McDonald's (MCD) is the index's biggest faller on company news, after an investor day that committed $8.5 billion to franchisee support through 2036. The S&P 500 and NASDAQ Composite are lower as well, so the rest of the selling is market-wide rather than one company's.

October hike odds went from under one in ten in August to nearly three in four

The same survey put its price gauges at their highest since October 2022, and the 10-year Treasury yield climbed above 5% to its highest since July 2007. Fed Governor Barr then said further rate increases are likely to be needed because inflation isn't clearly heading back to the 2% target. He made the case for higher borrowing costs at a Chicago Fed conference on housing affordability.

The Fed raised its rate to 3.75-4.00% on September 16, its first increase since July 2023, and decides again on October 28. Rate futures make 4.75-5.00% the most likely setting by July 2027, four more quarter-point increases, and no meeting through the end of 2027 has a cut as its most likely result. Home Depot (HD) and Sherwin-Williams (SHW) sell into a housing market that borrows at rates priced off the 10-year yield.

Governor Barr puts the AI boom on the inflation list

Governor Barr counted the boom in artificial intelligence (AI) investment among the forces pushing prices up, alongside tariffs and the war in the Middle East. The same spending took the NASDAQ Composite to a record close on Tuesday, and the Dow Jones Industrial Average fell that day.

Cleveland Fed President Hammack, who votes on rates this year, speaks on Thursday at 12:50 GMT and Friday at 18:00 GMT. Friday's University of Michigan (UoM) survey at 14:00 GMT is forecast to show consumers expecting 4.6% inflation over the next year, more than twice the 2% the Fed is raising rates to reach.

Levels and bias

Resistance: Wednesday's high just under 52,000 is the first cap. Above it, the 50-day Exponential Moving Average (EMA) near 52,500 has capped every bounce since early September, Tuesday's high just above 52,400 included.

Support: 51,500 is the first floor, with the session low just above it and the September 18 low just under it. Below that, the September 16 low near 51,200 is the lowest since June.

Bias: The lean is short below 52,000, with the September 16 low near 51,200 as the first objective and the 51,000 handle as the second. The daily Stochastic Relative Strength Index (Stoch RSI) is near 21 and still falling, just above the 20 line that marks an oversold reading. A daily close back above 52,000 ends the short case.

Dow Jones daily chart