Dow Jones Industrial Average retreats as US-China trade talks loom

• The Dow Jones shed 150 points on Friday, falling back to 41,200.
• Investors are bracing for geopolitical tensions as the US and China head for initial trade talks.
• Even a social media post from President Trump pondering 80% tariffs could bolster market sentiment.

The Dow Jones Industrial Average (DJIA) followed the broader market lower on Friday, declining to 41,150 as investors gear up for a tense weekend. The United States (US) and China are headed for opening trade talks in Switzerland this weekend, but policymakers from both administrations have cautioned that talks will be strictly preliminary. Chinese delegates have specifically warned that a definitive deal could be months away.

US President Donald Trump hit social media early on Friday, publicly musing about a potential walkback of tariffs on Chinese goods that currently stand at an eye-watering 145%. Donald Trump floated the idea of reducing Chinese tariffs to 80%. An 80% tariff on Chinese goods is indistinguishable from 145%, as both levels are so high that they functionally represent an embargo on cheap trade, which the entire US economy is wholly dependent on.

Middling Fed remains apprehensive of rate adjustments

The Federal Reserve (Fed) hit a firm wait-and-see tone this week, after holding interest rates steady in May. A slew of Fed policymakers made public appearances on Friday, but they all put significant effort into avoiding speaking directly on monetary policy. The Fed looks set to continue shrugging its shoulders at the uncertainty from lopsided trade policy rendering it impossible to accurately forecast economic outcomes, leaving the data-dependent Fed planted firmly on the sidelines.

According to the CME's FedWatch Tool, rate traders are still pricing in better-than-even odds of the Fed being forced to deliver another quarter-point rate cut in July, but bets have been bleeding back toward another rate hold. At the current cut, rate markets are pricing in a 40% chance that the Fed won't cut in July either, up from the 20% to 30% odds were floating around earlier this week.

Dow Jones price forecast

The Dow Jones is poised for an extended backslide after flubbing a bullish run at the 200-day Exponential Moving Average (EMA) near 41,600 this week. Price action is easing back down from the key moving average, but near-term technical support is getting priced in at the 50-day EMA near 41,150.

Despite dark technical clouds gathering overhead, momentum still rests firmly in the hands of bidders. The Dow Jones has recovered over 12.5% from April's plunge below 37,000, and bids have continued to grind higher as market sentiment recovers.

Dow Jones daily chart