Dow Jones Rises as Banks Pass Stress Test and Upward GDP Revision Eases Recession Fears

June 30, 2023

The Dow Jones Industrial Average experienced gains as major banks passed the Federal Reserve’s stress test, while an upward revision of the GDP provided relief against recession concerns. The 30-stock index surged by 0.8%, gaining 269.76 points to close at 34,122.42. JPMorgan Chase, Goldman Sachs, Wells Fargo, and other financial stocks saw significant increases, with each rising by more than 3% and 4.5% respectively.

Positive economic data, including an upward revision in first-quarter GDP and a drop in weekly jobless claims, contributed to the overall sentiment of economic resilience. Despite the strong first half of the year, some caution is advised as Wall Street prepares for a potentially volatile second half.

The S&P 500, up by 14.5% this year, is on track for its best monthly performance since January. The Nasdaq Composite, driven by optimism surrounding artificial intelligence, has climbed nearly 30% and is poised for its best first half since 1983.

In contrast, the Dow has underperformed, with only a 2.9% increase. While the markets have shown strength, experts anticipate the possibility of consolidation and urge investors to utilize market volatility to position themselves for a broader recovery.

Overall, the passing of the stress test and positive economic indicators have contributed to a positive sentiment in the market, but caution remains as Wall Street prepares for potential market fluctuations in the second half of the year.

All sectors' performances with the Dow Jones underperforming, with a 2.9% increase.

Data by Bloomberg

On Thursday, the stock market showed a generally positive performance across various sectors. The overall market, represented by the All-Sectors index, rose by 0.45%. The Financials sector led the gains with a strong increase of 1.67%, followed by Materials with a rise of 1.27% and Energy with a gain of 1.11%.

Industrials also performed well, showing a growth of 0.94%. Real Estate and Health Care sectors exhibited moderate gains of 0.87% and 0.65% respectively. Information Technology experienced a slight increase of 0.13%, while Consumer Discretionary showed a minimal rise of 0.06%.

However, some sectors faced a decline in value. Utilities experienced a slight decrease of 0.05%, while Consumer Staples saw a more notable decline of 0.15%. The Communication Services sector showed the largest decrease among the sectors, with a decline of 0.63%.

Overall, the stock market on Thursday displayed a positive performance, with notable gains in the Financials, Materials, and Energy sectors. The declines in the Utilities, Consumer Staples, and Communication Services sectors represented a small portion of the overall market movement.

Major Pair Movement

The dollar index experienced a 0.34% increase as a result of the upward revision of Q1 GDP and the anticipation of two more rate hikes, causing 2-year Treasury yields to surge by 15 basis points. This surge brought the yields closer to the peak observed in March before the banking crisis.

Two-year bund yields also rose by 7 basis points and are approaching their March highs at 3.395%, while 2-year Treasury yields reached a peak of 5.084% in March. Eurozone core inflation for June is forecasted to be 6.7% year-on-year, slightly lower than the previous figure of 6.9%, and U.S. May core PCE is expected to remain at 4.7%.

However, the core PCE is currently at its highest level since December, while eurozone core inflation, if it meets the forecast, would be at its lowest since December.

The disparity between the European Central Bank’s rates at 3.5% and the inflation rate remains significant, whereas the Federal Reserve’s target range of 5.0-5.25% is higher than the core PCE.

Considering the overall economic data, the dollar has benefited from the divergent performance of the eurozone and the United States, which may result in less negative bund-Treasury yield spreads and a potentially higher EUR/USD exchange rate.

Picks of the Day Analysis

EUR/USD (4 Hours)

EUR/USD Slips as Stronger US Dollar Gains Momentum from Robust Economic Data

The EUR/USD experienced a second consecutive day of losses as it fell below 1.0900, primarily due to a strengthening US Dollar driven by encouraging economic data. Inflation figures in the Eurozone displayed a mixed picture, revealing a slowdown in Spain and a rebound in Germany that came as no surprise.

German inflation in June slightly increased by 6.4%, mainly attributed to reductions in energy prices and transportation costs. However, experts noted that if these factors were excluded, the inflation rate would have declined.

The Eurozone Consumer Price Index data is eagerly awaited on Friday, as the European Central Bank has already indicated an upcoming rate hike in July due to persistently high inflation. Meanwhile, Federal Reserve Chair Powell reiterated a hawkish stance, with policymakers expecting further rate hikes this year.

US economic data exceeded expectations, with Initial Jobless Claims dropping to a four-week low of 239K. The Core Personal Consumption Expenditure Index, the Fed’s favoured inflation gauge, will be closely watched on Friday, as positive figures could solidify expectations of a rate hike soon.

Movement of EURUSD with the Dow Jones experiencing gains.

Chart EURUSD by TradingView

According to technical analysis, the EUR/USD pair moved lower on Thursday and reached the lower band of the Bollinger Bands. Currently, the price is moving just above the lower band of the Bollinger Bands which shows that there’s a possibility that the price will move slightly higher to the middle band of the Bollinger Bands. The Relative Strength Index (RSI) is currently at 36, suggesting that the EUR/USD is slightly bearish.

Resistance: 1.0904, 1.0965

Support: 1.0842, 1.0780

XAU/USD (4 Hours)

XAU/USD Resilience Fades as Strong US Dollar Drives Gold to March Lows

XAU/USD faced vulnerability despite recovering from losses, as a strong US Dollar drove Gold to its lowest level since March at $1,892. However, a subsequent rebound brought it back to the $1,910 range, alleviating bearish pressure.

The overall outlook for bulls remains complicated due to various fundamental factors. US data surpassed expectations, with Initial Jobless Claims hitting a four-week low at 239K, Continuing Claims unexpectedly dropping to 1.742 million, and Q1 GDP growth being revised higher to 2%.

Conversely, Pending Home Sales in May slid 2.7%, defying expectations of a 0.2% increase. The positive labour market and GDP figures indicate a robust US economy, potentially paving the way for further tightening by the Federal Reserve (Fed). US Treasury Yields surged to weekly highs, impacting XAU/USD, with the 10-year yield reaching 3.86%, its highest level since March.

Concurrently, the US Dollar gained momentum, pushing the DXY above 103.30, a two-week high. Although Gold experienced a sharp rebound after dipping below $1,900, it encountered resistance below $1,915 and eventually stabilized around $1,910.

Despite the temporary relief, the bias remains on the downside for Gold, as factors such as Powell’s hints of higher interest rates and robust US data continue to work against the precious metal. The upcoming release of the Core Personal Consumption Expenditure Index on Friday holds significant importance for both the Fed’s decision-making and the future of Gold.

Movement of XAUUSD with the Dow Jones experiencing gains.

Chart XAUUSD by TradingView

According to technical analysis, the XAU/USD pair is moving lower to as low as $1,892 before going back higher and is able to reach the lower band of the Bollinger Bands. Currently, the price is moving higher to reach the middle band of the Bollinger Bands. The Relative Strength Index (RSI) is currently at 42 from the lower level, indicating that the XAU/USD is trying to move back in a neutral stance.

Resistance: $1,921, $1,932

Support: $1,903, $1,890

Economic Data
CurrencyDataTime (GMT + 8)Forecast
CADGross Domestic Products20:300.2%
USDCore PCE Price Index20:300.3%