Dow Jones Forecast: DJIA Maintains Bearish Bias Ahead of Fed Rate Decision

Despite having registered two consecutive recovery sessions, the index is now showing new declines, accumulating a loss of more than 5% over the last ten trading sessions. The bearish pressure persists, driven by market uncertainty due to the White House’s trade war and the upcoming Federal Reserve rate decision, which will be announced tomorrow.

The Fed’s Rate Decision Arrives

Tomorrow, March 19, the Federal Reserve is expected to announce its interest rate decision. Currently, the CME Group assigns a 99% probability that the central bank will keep rates unchanged, within the 4.25% - 4.5% range.

Source: CME Group

Given this outlook, the market appears to be anticipating a neutral monetary policy, keeping rates stable. However, the key focus will be on the speech by Fed Chair Jerome Powell following the decision. His remarks could provide clues as to whether the central bank will maintain its current stance or if it is considering rate cuts before mid-year.

As the decision approaches, the neutral sentiment in the Dow Jones is likely to persist throughout today’s session. However, it is essential to recognize that interest rate policy can have a direct impact on stock indices in the coming weeks.

If the Fed maintains rates at 4.5% for an extended period, borrowing costs for both businesses and consumers will remain high, potentially dampening domestic consumption and investment in the U.S. Over time, this could lead to lower sales and weaker earnings reports for major companies.

Additionally, market confidence remains unstable, prompting investors to shift towards fixed-income assets, such as Treasury bonds, which remain attractive due to their yields being tied to the Fed's rate. Both of these factors—the impact of high rates and the shift toward safer assets—could continue exerting downward pressure on the Dow Jones, sustaining the negative trend observed in recent sessions.

On the other hand, if Powell hints at a potential easing of monetary policy in the future, this could bolster market confidence and generate bullish pressure on the Dow Jones. So far, the market has not seen a rate cut since December 2024, and high rates have started to weigh heavily on economic performance.

What About the Trade War?

Since the announcement of 25% tariffs on products from Canada and Mexico, no agreement has been reached to lift these measures in the short term. Despite aggressive responses from the Canadian government, the policy remains in place, affecting all three North American economies.

Recently, the Organization for Economic Cooperation and Development (OECD) revised its 2025 growth forecasts downward. According to its projections:

• Mexico could enter a recession, with a 1.3% GDP contraction.
• Canada would maintain minimal growth of 0.7%.
• The United States is expected to grow its GDP by 2.2%.

While the trade war aims to strengthen the U.S. as a global economic power, in reality, tariffs could increase production costs and raise the prices of basic goods, leading to persistent inflation. Over the long term, the bleak economic outlook resulting from the trade war could remain a key driver of bearish pressure on the Dow Jones, particularly if confidence in the U.S. economy continues to deteriorate.

Dow Jones Technical Outlook

Source: StoneX, Tradingview

• Potential Double Top Formation: Since October 2024, the index’s fluctuations have formed a potential double top structure, with a peak at 45,000 points and support at 42,000 points. Currently, the price has made a bullish retracement to the base of the formation. However, if bearish pressure persists, confirmation of the pattern could signal a trend reversal, breaking the long-standing bullish trend and paving the way for a stronger selling movement in the upcoming sessions.

   

• Break of Long-Term Trendline: In early March, selling pressure broke a long-standing bullish trendline that had been intact for several months. This breakdown highlights the significance of current bearish pressure, suggesting that sellers have gained control of the market in the short term.

   

• RSI: The RSI line has begun to recover slightly above the oversold zone (30). If the RSI retests this area, it would indicate a persistent imbalance between supply and demand, potentially leading to bullish corrections in the coming sessions.

   

  Key Levels:

   

  • 43,000 points – Major Resistance: This level aligns with the breakout of the major long-term bullish trendline. If the price returns to this zone, it could reactivate the lateral consolidation seen in recent months, challenging the double top formation.
    
    
  • 42,000 points – Near-Term Resistance: Coincides with the 200-period moving average and the support of the double top pattern. This could be the level where short-term bullish corrections may occur.
    
    
  • 40,000 points – Critical Support: Positioned at a neutrality zone not seen since September 2024. This level could act as the final barrier for confirming a consolidated bearish trend, making it pivotal for determining the index’s direction in the coming sessions.

Written by Julian Pineda, CFA – Market Analyst