By
Bhushan Akolkar
April 17th, 2024
Following strong earnings reports from several financial companies, the Dow Jones Industrial Average is currently rallying.
The Dow Jones Industrial Average is on the rise as several companies release impressive earnings reports for the third quarter. Corporate reports pushed the Dow into rally territory for the second consecutive session on Tuesday, continuing a relatively strong week.
The Dow climbed 337.98 points, a 1.12% increase, before closing at 30,523.80. Banking and financial services firm Goldman Sachs (NYSE: GS) rose by 2.3% and pushed the Dow after releasing its report. Other financial giants, including the Bank of America and Bank of New York Mellon, also published impressive figures. Recently increased interest rates, among other factors, buoyed financial companies into significant performance increases.
Despite Strong Earnings Reports, Dow Jones and Broader Market to Brace for Recession
Notably, these companies are performing well despite the sour trading market. The general market is not enjoying great sentiments because of these interest rates and recession fears. For a while now, analysts have warned that a recession in the broader market is possible. Last week, JPMorgan CEO Jamie Dimon said that the US and the global economy could enter a recession in 2023. Although he believes the economy is thriving, his opinion is that the future might not be so bright. His major concerns are the effects of monetary tightening, inflation, and continuously increasing interest rates.
“These are very, very serious things which I think are likely to push the US and the world – I mean, Europe is already in recession – and they’re likely to put the US in some kind of recession six to nine months from now,” stated Dimon.
The market sentiment is also unlikely to improve anytime soon. Fed Chairman Jerome Powell has said that the plan is to reduce the inflation rate to 2%. At the moment, US inflation is over 8%. Therefore, it is likely that the Federal Reserve will again increase interest rates in November, pushing them higher than the current 3%. Speaking at an economic policy symposium held back in August, Powell warned there will be more pain:
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
Current Economic Shape is Fair
Although a recession might be looming, the economy is currently doing okay. According to JPMorgan’s head of global macro research, Dubravko Lakos-Bujas, the market is strong. Dubravko said that earnings reports in the third and fourth quarters will confirm that the economy is responding favorably to a resilient labor market and recovery from Covid. He also added that equity valuation will benefit from increasingly positive central bank rates and sentiments. Furthermore, he is optimistic that all of these means the year will end strong. However, for 2023, Dubravko expects “a more challenging earnings backdrop relative to current expectations.”