Can WSt30_m hit new 2023 high on Friday?

The WSt30_m, which tracks the benchmark Dow Jones Industrial Average index, has already posted a new year-to-date intraday high yesterday (Wednesday, July 12^th).

The Dow Jones Industrial Average is an index that tracks 30 stocks that are industry leaders in the US economy, including the likes of Microsoft, McDonald’s, and Chevron.

Wednesday’s spike came as risk assets were buoyed by the lower-than-expected growth in US consumer price indices:

• CPI month-on-month (June 2023 vs. May 2023) = 0.2%
  - lower than market forecast of 0.3%
   
• Core CPI (excluding food and energy prices) month-on-month = 0.2%
  - lower than market forecast of 0.3%
   
• CPI year-on-year (June 2023 vs. June 2022) = 3.0%
  - lower than market forecast of 3.1%
   
• Core CPI year-on-year = 4.8%
  - lower than market forecast of 5.0%

 

In light of the recent slowdown in US inflation, markets now have greater hope that the Fed rate hikes that began in 2022 will soon be over:

• As of Tuesday, July 11^th, markets had predicted a 43% chance of another Fed rate hike after July.
   
• As of the time of writing on Thursday, July 13^th, markets now predict only a 13% chance of another Fed rate hike after July
  (between next month and end-2023).

 

What’s next for WSt30_m index?

Look out for US earnings season, which unofficially kicks off tomorrow (Friday, July 14^th).

Investors and traders will be treated to a slew of quarterly earnings out of Wall Street heavyweights such as JPMorgan, Wells Fargo, and Citigroup.

 

Why are these bank earnings important?

From the Dow index’s perspective, note that JPMorgan alone accounts for 2.8% of the Dow index, while Goldman Sachs (which is due to release its own earnings on July 19^th) makes up 6.3% of the Dow.

And these banking stocks tend to move in tandem.

In other words, 9% of the Dow Jones index is set to sway along to Wall Street banks’ earnings starting tomorrow.

That in turn should have a major say on how the WSt30_m index performs as well.

• Better-than-expected bank earnings may help push WSt30_m index closer to that mid-December intraday peak just shy of the 35,000 psychologically-important mark.
   
• On the other hand, disappointing banking earnings may weigh on the WSt30_m and prompt the index to unwind some of its recent gains.
  
  However, such dampeners may be offset if the risk-on mode across US stock markets can persist following the softer-than-expected CPI data released earlier this week.