Dow Jones index forecast as renowned Wall Street bear changes tune

The Dow Jones index surged to $35,416, the highest level since February 2022 as the corporate earnings season took shape. It jumped ahead of the upcoming Federal Reserve interest rate decision. It has risen by over 23% from the lowest level this year.

Wall Street bear changes course

The Dow Jones has been in a strong bullish trend in the past few months as investors buy the dip. For the most part, many Wall Street analysts have been highly optimistic about stocks as conditions change.

Inflation is falling at a faster pace than expected while the Federal Reserve is expected to end its tightening phase this week. Corporate earnings are making some modest improvements as we saw with key American banks like JP Morgan and Morgan Stanley.

One Wall Street analyst has been extremely bearish on stocks this year. As I wrote here, Morgan Stanley’s Mike Wilson has consistently warned that this stock market rally will not hold. As a result, he has long believed that the S&P 500 index will retreat to $3,900 from the current $4,550. 

Now, he has expressed a Mea Culpa, admitting that he maintained a bearish tone for so long. He added that his S&P 500 index forecast for 2024 is at $4,200, lower than the current price. His change of tune could lead to more gains since Wilson is one of the most respected Wall Street analysts.

“Inflation is now falling even faster than the consensus expects, especially the inflation received by companies. With price being the main factor that has held sales growth above zero for many companies this year, it would be a material headwind if that pricing power were to roll over.”

Federal Reserve decision and earnings

The Dow Jones index will have two important catalysts this week. First, the Fed is expected to raise interest rates by 0.25%. With inflation falling, the bank could signal an end to more tightening. 

I believe that further rate hikes could see the US have a hard landing in the coming months. For one, the yield curve has inverted to the lowest level in decades while recent data like retail sales and industrial production were weak.

The other catalyst will be the upcoming quarterly earnings season by the biggest American companies. Some of the most notable ones to watch will be Meta Platforms, Microsoft, ExxonMobil, and Alphabet.

Dow Jones forecast

The daily chart shows that the Dow Jones did a unique thing this month. It managed to flip the important resistance level at $34,693 into a support. This was a crucial level since it was the highest point in December.

The Dow Jones index is being supported by the 50-day moving average while oscillators have continued rising. Therefore, the outlook for the index is bullish, with the next level to watch being at $36,000. A brief retest to $34,693 cannot be ruled out.

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