Insights 
VT 
The Dow Jones Industrial Average (DJIA) reached new weekly highs despite a drop in the University of Michigan’s Consumer Sentiment Index to 50.8 from 52.2. Consumer inflation expectations also grew, with 1-year and 5-year predictions increasing to 7.3% and 4.6%, respectively.
Concerns about tariffs have influenced consumer outlooks, increasing the risk of “profit-led inflation.” Recent US inflation data was better than expected, but the impact of tariffs remains a concern, with the Effective Tariff Rate jumping to 13% from 2.5%. The rate specifically on China is over 30%.
Market Response to Policy Changes
The Trump administration often proposes drastic policy changes with later reversals. A budget bill was recently rejected in Congress, impacting spending plans and drawing expected criticism from President Trump. The DJIA has rebounded to 42,500, recovering from a dip to 36,600, driven by easing trade concerns.
Bullish market trends pushed the DJIA above the 200-day Exponential Moving Average at 41,500, gaining 16.25%. The DJIA, a price-weighted index of 30 major US stocks, is influenced by macroeconomic data, interest rates, and inflation. Dow Theory considers both the DJIA and the Dow Jones Transportation Average to gauge market trends.
Despite a sharp dip in consumer sentiment—now resting at a low 50.8 after coming in at 52.2 previously—the Dow Jones Industrial Average (DJIA) managed to climb to new weekly highs. At face value, this seems contradictory. Dig a bit deeper and the story begins to make more sense. Market euphoria often momentarily discounts pessimism if broader economic indicators or expectations around central bank policy shift favourably.
Direct inflation expectations from consumers are up once again. The 1-year horizon now sits at 7.3%, while the 5-year is up to 4.6%. These are not minor upticks to glance past. Pricing pressures are sticking well above what policymakers might be comfortable with. While inflation figures have surprised to the downside recently—which partially buoyed equities—this needs to be put in context. Tariff-related costs are beginning to resurface in a more material way, and that has the potential to strain margins.
The Effective Tariff Rate stands at 13%, a fivefold rise from its earlier level of 2.5%, and if we take a closer look at specific China-linked tariffs, we’re seeing figures north of 30%. These are not just political levers; they feed directly into corporate cost structures. While short-term data may show resilience, this sort of sustained cost pressure tends to filter down across multiple earnings cycles.
Impact of Dow Theory on Market Trends
A level of policy unpredictability has crept back into the discussion. Historical patterns, especially from the previous administration, show a tendency for bold policy pronouncements that are later watered down or retracted. The recent rejection of a budget proposal in Congress follows this trend. What matters more to us are the implications this has on expected fiscal spending, especially with ongoing inflation pressures. Without clear guidance on where the money flows, corporate earnings projections become less anchored.
Technically, the DJIA has done well to crack above the 200-day Exponential Moving Average, which was sitting at 41,500. That level often acts as a barometer for broader trend sentiment, and a sustained close above it typically suggests investors are willing to take on equity risk. Recovering from a low of 36,600 to 42,500 marks a 16.25% climb—not exactly an opportunistic entry point for momentum-based setups, but not one to fade blindly either.
The Dow Jones, composed of 30 large-cap US companies, is priced to reflect movements in key sectors. It operates as a price-weighted index, meaning high-priced shares can skew its movement more than others. As such, it’s sensitive not just to underlying economic data but to how markets interpret positioning relative to interest rates and inflation projections.
Dow Theory, which we continue to keep an eye on, suggests that any strength in the industrial index should be confirmed by movement in the transport index. Disparities between the two sometimes act as early warnings, particularly during tapering cycles. If transports cannot maintain the momentum seen in industrials, that disconnect may indicate future trouble beneath the surface.
We’ll want to see how rates respond to unpredictable fiscal moves and whether the existing elevation in tariff pressure spills over into producer-level inflation metrics. For now, volatility in rate expectations is the more tradeable element, even if the broader index paints a picture of risk appetite returning.
