The Dow Jones Index plunged by over 1.80% on Friday as concerns about geopolitics emerged. Its crash mirrored that of other American indices like the S&P 500, Nasdaq 100, and the Russell 2000. This article explores the top 3 catalysts that will drive the Dow Jones and the US stocks this week.
Federal Reserve interest rate decision
The most important catalyst for the Dow Jones Index will be the Federal Reserve, which will deliver its interest rate decision on Wednesday.
This decision typically impacts all assets, including American stocks, bonds, cryptocurrencies, and commodities.
Typically, American stocks do well when the Fed is either cutting rates or when it signals of an imminent cut. This happens because lower rates lead to lower bond yields, which push investors away from fixed income.
Economists believe that the Fed will leave interest rates unchanged, disappointing Donald Trump, who has called for a full point cut.
The Fed has signalled that it would embrace a wait-and-see approach as it observes the impact of tariffs on consumer and producer prices.
Data released last week showed that US inflation rose by lower than expected in May. The headline consumer price index (CPI) rose from 2.3% in April to 2.4%, slightly lower than the expected 2.5%.
Analysts caution that these numbers don’t reflect the real situation, as companies are still using products they bought before the Liberation Day tariffs.
Therefore, the earliest that the Fed will cut interest rates will be in the September meeting. This will depend on whether the upcoming inflation numbers will be hotter than expected.
A dovish Fed decision will boost the Dow Jones and other US stocks, while a more hawkish one will lead to more downside.
Read more: GBP/USD forecast: signal ahead of Fed and BoE rate decisions
Iran and Israel crisis
The other top catalyst for the Dow Jones Index is the new crisis in the Middle East. This crisis started on Friday morning when Israel launched a major attack against Iran. The attack targeted key nuclear facilities and senior military and nuclear leaders.
Iran has responded to these attacks by launching a missile barrage. A wider crisis in the Middle East could have a major impact on the Dow Jones and other US stocks.
The impact will come from the rising crude oil prices. Brent, the global benchmark, ended the week at $74, while the West Texas Intermediate (WTI) rose to $73.
Higher oil prices hurt many American companies by boosting the cost of doing business. They also have a negative impact on inflation, which in turn pushes the Federal Reserve to maintain high interest rates.
Dow Jones to react to quadruple witching
The other major catalyst that may drive the Dow Jones and other US stocks is the upcoming quadruple witching. This is an important event that happens when stock index futures, stock index options, and stock options expire simultaneously.
The Dow Jones and other indices always experience volatility before and after the quadruple witching event.
Further, the index will likely react to any trade-related news during the week. Potential trade deals will be bullish for the stock market, while signs of escalation will be bearish.
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