The Dow Jones Industrial Average dropped nearly 475 points. This was its worst decline since February. The fall marked the decline of the blue-chip’s index by more than 210 points.
Dow Jones In Addition to US Inflation Data
The Dow Jones Industrial Average is a benchmark index in the US for blue-chip companies such as Walt Disney Corporation, Microsoft Corporation and Apple. The index has constantly been on a more than 40% upward trend in the last 12 months amidst the Corona virus pandemic.
The Federal Reserve has played a key role in the increases by providing the market with unrestricted liquidity. This move has brought down the interest rates to zero. It has also facilitated the purchase of resources worth more than $3 trillion in the last year.
Stocks are most likely to maintain a high when the interest rates are low. The main reason for this is because low interest rates pull down the US Dollar Index. In the past year, the US Dollar dropped by 10% which caused a surge in Dow Jone Stocks since most of them do their businesses globally.
The low interest rates motivate companies and individuals to move their assets to stocks. It also brings about rotation from low production bonds to equities.
This explains why the Dow Jones has pulled back due to inflation fears. Inflation leads to higher interest rates which affects stocks. Recent figures have outlined the rise in inflation. Commodities such as copper, crude oil and lumber have doubled in the past year hence influencing the rise in inflation.
US CPI Data Outlook
The DJIA Index will most likely be affected by the high inflation figures being released today. This is because the Fed could start narrowing its asset purchases earlier than anticipated. The US CPI has recorded a 3.6% rise.
Despite the possibility of having negative effects on the DJIA Index, it could also push the index higher. Some companies in the Dow Jones have recorded an upsurge of more than 25%. Other companies such as Walmart have taken in a nosedive of more than 3%.