Top catalysts for the Dow Jones Index and the DIA ETF in December

The Dow Jones continued its strong rally in December, hitting its all-time on record. It has now risen in the last seven consecutive months, the longest winning streak in years. It is up by about 30% from its lowest level this year. Here are the top catalysts that may impact the blue-chip index in December.

Dow Jones Index and DIA ETF to react to the Federal Reserve interest rate decision 

The main catalyst for the Dow Jones Index will be the Federal Reserve’s final interest rate decision of the year.

Most analysts believe that the bank will cut interest rates by 0.25% in this meeting, a move that will bring the benchmark rate to between 3.50% and 3.75%. Odds of this scenario have jumped to over 80% on Polymarket, the popular prediction marketplace.

Most importantly, the Federal Reserve will end its quantitative tightening policy that has reduced its balance sheet in the past few years today.

Odds of a rate cut have intensified after the recent government shutdown and as the labor market remains under pressure, with the unemployment rate rising to 4.6%. At the same time, while Trump tariffs have boosted inflation, the impact has been milder than expected.

The other notable catalyst for the Dow Jones Index will be Donald Trump’s decision on who will be the next Federal Reserve Chair. In a statement on Monday, the president said that he had already decided on who will become the next chair, with most traders betting on Kevin Hassett. In an interview on Sunday, Hassett said:

“We had a great Treasury auction, interest rates went down and I think that the American people could expect President Trump to pick somebody who’s going to help them have cheaper car loans and easier access to mortgages at lower rate.”

Santa Claus rally 

The other potential catalyst for the Dow Jones Index is the so-called Santa Claus rally, a situation where stocks and other financial assets rally towards Christmas Day.

The general idea is that Santa Claus rewards these investors and pushes the markets upwards. As a result, it is common for investors to invest in stocks, mostly after the Thanksgiving weekend.

However, historical data shows that the stock market is usually mixed towards Christmas. For example, the Dow Jones Index dropped from $45,000 in the first week of December last year to $41,900 in the first  week of January.

A different scenario happened a year earlier, when the Dow Jones jumped from $35,385 in the final week of November 2023 to $37,700 in the final week of the year. Therefore, it is hard to predict whether the Santa Claus rally will boost the Dow Jones Index this year.

Top earnings to impact the stock market 

The other notable catalyst for the Dow Jones Index in December will be some key corporate earnings, which will provide more color on the state of the market. 

However, most significant companies have already published their results, which have been solid. Data by FactSet shows that the average earnings growth was over 13.6%, the fourth consecutive quarter of double-digit growth.

The only Dow Jones company that will publish its results this week is Salesforce. The other most important companies that may have an impact on the index this month are Oracle, Micron Technology, Nike, FedEx, Broadcom, Costco, and Adobe. ​​

Meanwhile, the Dow Jones Index will react to any developments on artificial intelligence, where some analysts are warning it could be a bubble. Other potential catalysts are geopolitics, including the Russian and Ukrainian war and the potential escalation between the US and Venezuela.

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