Why is Apple's margin forecast weighing on the Dow Jones Industrial Average?

DJIA slides to its weakest level since October 14, erasing Monday's entire advance.
A semiconductor rally supports the Nasdaq and S&P 500 following three consecutive session declines.
Ahead of Wednesday's session, midterm vote counting takes centre stage; October payrolls follow on Friday.

US equities are diverging on Tuesday: semiconductor-led gains are supporting the Nasdaq Composite and S&P 500 following three consecutive losing sessions, but the Dow Jones Industrial Average is retreating. Trading around 51,700, marginally below Friday's close, the Dow has erased Monday's entire advance. An intraday trough around 51,500 marks its weakest level since October 14.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Pressure on the Dow is coming from Apple (AAPL), whose Monday results fell short of analysts' expectations. Both its gross margin guidance and fiscal fourth-quarter iPad sales missed estimates. Following the release, HSBC lowered its share price forecast for Apple by $6 to $360.

Ahead of its third-quarter earnings release, Advanced Micro Devices (AMD) is gaining, alongside Broadcom (AVGO), Micron (MU) and Nvidia (NVDA). This reverses Monday's pattern, when the Dow advanced while the Nasdaq Composite lost more than 1%. Measured against its recent high, the NASDAQ 100 remains roughly 10% lower; the Dow's decline from its August peak is less than 6%.

What Is Next on the Economic Calendar?

Once Tuesday's polls close, counting begins for the US midterm elections. Wednesday offers the first trading session in which markets can respond to the results determining control of the House and Senate from January. With prediction markets assigning Democrats a near 75% chance of winning the Senate, investors and analysts said equities have not yet priced in a Democratic sweep of both chambers.

Wednesday's releases begin with the Automatic Data Processing (ADP) employment count for October at 13:15 GMT, with a forecast of 69K compared with the previous 90K. At 15:00 GMT, the Institute for Supply Management (ISM) services index is expected at 54.8. Friday brings October Nonfarm Payrolls (NFP) at 13:30 GMT, forecast at 65K against the previous 29K. Both employment counts will inform the Fed's December interest rate decision.

What Do the Charts Indicate?

Around half of the advance that began just above 50,500 on October 1 has been erased by the retreat from the late-October peak near 52,900. For a third session, the index is trading beneath its 50-day Exponential Moving Average (EMA), around 52,100, while the 200-day EMA stands near 50,750. After spending most of October's second half in overbought territory, daily momentum has now eased out of that zone.

Daily Chart of the Dow Jones

Dow Jones: Frequently Asked Questions

What does the Dow Jones represent?

Comprising the 30 most actively traded US stocks, the Dow Jones Industrial Average ranks among the world's oldest stock market indices. Rather than using market capitalisation, it assigns weights according to share prices. Its value is calculated by adding the constituent share prices and dividing the total by a factor, currently 0.152. Charles Dow, who also established the Wall Street Journal, founded the index. In subsequent years, critics have questioned how broadly it represents the market: unlike wider benchmarks such as the S&P 500, it follows only 30 conglomerates.

What drives movements in the Dow Jones Industrial Average?

The combined performance of its constituent companies, as shown in their quarterly earnings reports, is the principal driver of the Dow Jones Industrial Average (DJIA). Other influences include US and global macroeconomic releases, which shape investor sentiment. By determining interest rates, the Federal Reserve (Fed) also affects the index through borrowing costs, given many companies' heavy reliance on credit. Inflation and other indicators that influence Fed decisions can therefore play a significant role in the DJIA's movements.

How does Dow Theory identify market trends?

Developed by Charles Dow, Dow Theory provides a framework for recognising the stock market's primary trend. It involves comparing the direction of the Dow Jones Industrial Average (DJIA) with that of the Dow Jones Transportation Average (DJTA), following a trend only when both indices move in the same direction. Trading volume serves as confirmation, while analysis of peaks and troughs forms another part of the approach. Dow's framework describes three phases: accumulation, as smart money begins buying or selling; public participation, as the broader public enters; and distribution, as smart money exits.

Which instruments offer ways to trade the DJIA?

Investors can access the DJIA through several instruments. ETFs offer a way to trade the index as one security without purchasing shares in each of its 30 constituent companies; a prominent example is the SPDR Dow Jones Industrial Average ETF (DIA). Futures contracts on the DJIA allow traders to speculate on its future value. Options, by contrast, grant the right, without imposing an obligation, to buy or sell the index at a pre-agreed price in the future. Through mutual funds, investors can purchase a share of a diversified portfolio of DJIA stocks, gaining exposure to the index as a whole.