Dow Jones Dips as Inflation Risks Dull Rate Cut Hopes

The Dow Jones (DJIA) is trading lower ahead of the Federal Open Market Committee (FOMC) meeting at 2 p.m. Eastern Time today.

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Inflation is still very much a major economic risk, according to the latest U.S. Producer Price Index (PPI) report from the Bureau of Labor Statistics (BLS). In February, the PPI rose 0.7% month-over-month, more than double the consensus estimate of 0.3% and accelerating from 0.5% in January. The index measures the prices producers receive for goods and services and is commonly viewed as a leading indicator of inflation. Service costs, which increased by 0.5%, contributed more than half of the overall PPI growth.

Core PPI, which excludes volatile food and energy prices, increased by 0.5% during the month and also topped the estimate of 0.3%. The inflation data doesn’t factor in rising oil and gas prices from the U.S.-Iran war, which began on February 28. Since then, Brent crude oil futures (BZ) have surged 35%.

The Fed is widely expected to hold rates steady today. However, this could be the case for the entire year as inflation risks pick up. The odds of zero rate cuts by year-end sit at 38.7%, up from 30.5% a day ago. The most likely outcome at 40.4% is for one rate cut.

Meanwhile, tensions continue to rise in the Middle East, threatening to push oil prices even higher. Iran threatened “new escalation” after Israel launched strikes on its South Pars gas field, which is also jointly owned by Qatar. Iran also warned that it could target oil infrastructure sites in neighboring Middle Eastern countries, placing Qatar, Saudi Arabia, and the United Arab Emirates on edge.

The Dow Jones is down by 0.90% at the time of writing.

Which Stocks are Moving the Dow Jones?

Let’s pivot to TipRanks’ Dow Jones Heatmap, which illustrates the stocks that have contributed to the index’s price action.

A higher-than-expected PPI reading has battered the consumer cyclical sector, with all stocks in the group trading lower. Tech stocks are also facing pressure, although Nvidia (NVDA) is slightly in the green after Rosenblatt raised its price target to $325 from $300.

Elsewhere, consumer defensive stocks are also weak, led to the downside by Procter & Gamble (PG). Chevron (CVX), the lone energy stock in the Dow Jones, is the top performer of the day as oil futures rise.

Is the Dow Jones a Good Long-Term Investment?

The SPDR Dow Jones Industrial Average ETF (DIA) is an exchange-traded fund designed to track the movement of the Dow Jones. As a result, DIA is falling alongside the Dow Jones today.

Wall Street believes that DIA stock has room to rise. During the past three months, analysts have issued an average DIA price target of $558.32, implying upside of 19.55% from current prices. The 30 holdings in DIA carry 30 buy ratings, zero hold ratings, and zero sell ratings.