American Express (AXP) stock experienced a significant drop of 3.7% on Wednesday, making it the worst performing member of the Dow Jones Industrial Average (DJIA) as the index gained ground. The drop coincided with market optimism surrounding the upcoming Jackson Hole Economic Symposium and the release of the Federal Reserve’s Meeting Minutes. The revision of Nonfarm Payrolls Benchmark for the upcoming months indicates a potentially worse scenario for the labor market, giving more reasons for the Fed to consider an interest rate cut in September.
Bank of America Securities downgraded American Express from Buy to Neutral due to concerns about falling consumer spending. The analyst highlighted that AXP’s slow billings growth and high valuation multiple made it overvalued. Despite a recent revenue increase of 8% YoY in Q2 2024, the analyst expects American Express to struggle with the lower range of earnings per share and revenue for the full year.
The Dow Jones Industrial Average (DJIA) includes the 30 most traded stocks in the US and is price-weighted. It was founded by Charles Dow and has been criticized for not being broadly representative enough due to its limited tracking of conglomerates. The performance of the component companies, macroeconomic data, and interest rates set by the Federal Reserve are major drivers of the DJIA. Dow Theory is utilized to identify the primary trend of the stock market, focusing on the direction of the DJIA and the Dow Jones Transportation Average (DJTA).
Investors have various options for trading DJIA, such as ETFs, futures contracts, options, and mutual funds. American Express stock had a strong performance in 2024, with shares up more than 30% year to date. However, recent weakness has led to a pullback in the stock, with AXP still trading above the 20-day and 50-day Simple Moving Averages. Support levels for AXP stock are currently near the lower trendline at $226 and the lower end of the $220s.
Overall, American Express faces challenges due to concerns over falling consumer spending and an overvaluation based on recent growth metrics. Investors are eagerly awaiting the outcomes of the Fed Minutes and Jackson Hole Symposium this week, which may provide further insight into the future outlook of the stock market and the potential impacts on American Express and other major stocks.
