Written by: Rania Gule, Senior Market Analyst at XS.com – MENA
The Dow Jones (US30) has recently experienced a notable surge in a strong upward wave, trading near $44,849. It recorded gains of 250 points at its peak before settling at a 150-point increase by the end of yesterday. In my opinion, this remarkable rally comes as investors seemingly disregard the renewed risks of a trade war threatened by U.S. President Donald Trump.
What stands out in this rise is the continued positive momentum in the markets despite growing uncertainty surrounding both trade and monetary policies. While the Federal Reserve prepares to announce its decision on interest rates, the market faces new tensions linked to another potential round of tariffs, putting traders in a complex equation between monetary expectations and trade challenges.
Recent U.S. economic data reveals a significant slowdown in durable goods orders, which declined by 2.2% in December, despite expectations of a 0.8% rebound. While this drop may seem concerning, the adjusted reading excluding the automotive sector showed a slight growth of 0.3%, indicating that the slowdown is not as severe as the headline figure suggests.
The automotive sector remains a particular point of concern, as American consumers are burdened with auto debt totalling $1.7 trillion, making vehicle spending more cautious. These factors reinforce fears that continued monetary tightening could impact consumer behaviour—something the Federal Reserve will need to consider when shaping its future policy.
Meanwhile, President Trump’s trade policies continue to cast a shadow over the markets. His renewed threats to impose tariffs on key sectors such as steel, copper, aluminium, and semiconductors bring back memories of previous periods of global trade tensions. In my view, the biggest challenge lies in the feasibility of these measures stimulating domestic production, as building factories in the U.S. requires massive investments.
Additionally, American labour costs are significantly higher than those in competing countries. As a result, the primary impact of such policies could be fueling domestic inflation and weakening consumer purchasing power, potentially hurting overall economic growth in the long run.
As for the Federal Reserve, markets are eagerly anticipating its upcoming statement on interest rates. While no immediate rate change is expected, the key focus will be on the tone adopted by Fed Chair Jerome Powell, especially amid growing political pressure from the White House. President Trump has consistently criticized the Fed and recently went as far as demanding rate cuts.
However, the central bank’s independence makes it unlikely that it will yield to these demands. The real question is how the market will react to the upcoming statement. If the Fed hints at a more accommodative stance, Wall Street’s rally may continue, whereas any signs of tighter monetary policy could bring back market volatility.
In my opinion, the latest movements in the Dow Jones reflect a sense of cautious optimism among investors. Despite some declines in certain sectors, leading stocks continue to perform strongly. Boeing (BA) surged 6.5% to $186 per share, while Salesforce (CRM) gained 5.5% to $366 per share. To me, these gains indicate that investors are still betting on strength in select sectors despite broader macroeconomic challenges.
Ultimately, the economic landscape remains complex, with monetary and trade factors intertwining to shape market direction. While the economy shows some signs of slowing, stock markets are still supported by positive momentum amid cautious anticipation of the Fed’s decision. The key question remains: can the market sustain its rally despite these challenges, or will a negative signal from the Fed or an escalation in the trade war trigger renewed volatility? The coming days will provide the answer, but for now, it is clear that markets are walking a fine line between optimism and risk.