The SPDR Dow Jones Industrial Average (DIA) has been under pressure lately as investors assess the change in tone of the Federal Reserve. The ETF is also retreating as investors brace for the fourth-quarter earnings from the biggest firms in the US. It is trading at $359, which is about 2.85% below the highest level this year.
Hawkish Federal Reserve
The DIA ETF is the biggest one that tracks the Dow Jones Industrial Average. Unlike other ETFs, the fund does not seek to outperform the Dow but just track it. It has a small expense ratio of 0.17% and a dividend yield of 2.2%.
While the Dow Jones index has been under pressure, it has slightly outperformed the tech-heavy Nasdaq 100 index. This small divergence is mostly because of the recent hawkish statements by Federal Reserve officials.
In November last year, the officials took the first steps to unwind the accommodative policy. They did this by lowering the asset purchases by $15 billion. Sensing that inflation was no longer transitory, the officials doubled this taper to $30 billion in December.
Recently, FOMC officials have hinted that the QE program will end in March. It will then be followed by several interest rate hikes.
In theory, high-interest rates are usually bad for most American stocks. However, the DIA has outperformed the Invesco QQQ because of the ongoing rotation from growth to value.
Earnings season continue
The DIA stock price has lagged lately as investors refocus on the fourth-quarter earnings. On Friday last week, major American banks delivered their results, which were mixed.
For example, Citigroup and JP Morgan delivered relatively weak results. Citigroup’s income declined by a whopping 25% as the company continued its restructuring plans. JP Morgan’s income also declined after the company announced technology investments worth billions of dollars.
On the positive side, Wells Fargo reported strong results as its turnaround strategy continued working. Additionally, Blackrock, the biggest asset manager in the world, grew its total assets under management to over $10 trillion. It is the first asset manager to ever cross that milestone.
The earnings season will continue this week. On Tuesday, the top companies to watch will be Goldman Sachs and Bank of America. Goldman is a member of the DIA fund and is one of the best performing big bank stocks this year.
Judging by the latest results by Citi and JP Morgan, analysts expect that Goldman Sachs’s results will be mixed.
Other top companies that will affect the Dow Jones and the DIA ETF this week will be Netflix, UnitedHealth Group, Travelers, Bank of New York Mellon, and State Street. Others will be JB Hunt, a leading logistics company, Morgan Stanley, Citrix, and Procter & Gamble.
According to Factset, the number of companies warning about the rising labor cost has increased. About 60% of firms in the S&P 500 have issued these warnings. Therefore, analysts will focus mostly on costs and forward guidance.
DIA stock analysis
The daily chart shows that the DIA ETF has been in a strong bullish trend in the past few months. It has risen by over 40% from its lowest level in November 2020. Along the way, the fund has formed an ascending triangle pattern that is shown in black.
It has also moved slightly above the 25-day and 50-day moving averages. The Relative Strength Index (RSI) has also dropped from about 65 to the current 40. Therefore, the DIA stock price will likely keep dropping as the earnings season goes on.