It doesn’t seem like the Dow Jones Industrial Average will have a good start to the week as the possibility of a Fed rate hike seems more likely. In addition, the “no” vote in Italy caused the Prime Minister of the country, Matteo Renzi, to resign from his post. This will likely have a negative effect on the Dow Jones for Monday’s trading. The Dow managed to close slightly lower on Friday as banks weighed heavily on the index. The good news is that the November jobs report was more than enough to keep the Dow stable for most of the trading session. The Dow Jones closed lower on Friday by 0.11% to 19,170.42. However, things look pretty grim thus far for opening trade in the U.S. markets on Monday.

Possible Fed Rate Hike

The month of December has arrived, and now it is the time for the Fed to make its next move. This next move will be crucial in determining how the Dow Jones will trade for the rest of this month. All will be decided upon whether or not the Fed moves to hike interest rates in the United States. In the prior two months the Fed was hesitant to pull the trigger on hiking rates. That could largely be attributed to the reason as not having enough confidence in the economy to recover. What could greatly change the minds at the Fed is the recent November jobs report which paints a nice picture on the U.S. economy. The U.S. labor department released the November jobs report on Friday which was highly bullish. The labor department indicated that the U.S.economy had added 178,000 jobs in November. This number was very good for two reasons. For one, analysts were only expecting the U.S. to only add to 175,000 jobs. In addition, analysts expected the unemployment rate to stay at 4.9%. Instead, the unemployment rate dipped to 4.6%. This shows resilience in the U.S. economy, and gives the Fed all the ammo that it needs to proceed with hiking interest rates. The problem with that is that an interest rate hike would cause the Dow Jones to trade lower. That is because the dollar would go up on a rate hike, and become a more attractive investment. Stocks would be dumped on the wayside, leading to a lower Dow.

Italy Vote Goes South

On top of a strong possibility for a Fed rate hike, the Dow Jones will trade based on the response in the European markets. That is because Italian votes on Sunday rejected any constitutional items proposed by the government. In the early hours on Monday there was at least half of the votes counted. At least 56% of the votes were leading with a “no” vote. That signifies that the voters don’t want to see sweeping reform changes in the Italian government. On that note, the Prime Minister Matteo Renzi immediately resigned. While good for the voters, it is terrible for the Italian economy itself. That is because it is the fourth largest economy in the Eurozone, and it is struggling to create growth. The “no” vote in Italy caused the Euro to trade lower by 1% on Monday, and signified worries across the globe that tension within the Eurozone could get worse. This greatly affects how the Dow Jones will trade when the U.S. markets open on Monday. This is because uncertainty with respect to Italy’s economy after the vote will create a lot of profit taking across the globe. That means the Dow Jones will probably be pressured all day on Monday.

Trading The Dow

The main cause for the Dow trading lower on Friday was the banks starting to fall apart. There was positive momentum heading into the weekend because of the positive November U.S. jobs report. The problem is that all that is diminished now that the Italian vote turned out the way it did. A “no” vote signifies that a lot of changes needed to boost the Italian economy will not see the light of day. In addition, the Prime Minister resigning leaves a lot of uncertainty on the table. This is especially true because Italy will now have to put together a new government in the coming months. The problem with this is that a lot of Italian banks are already insolvent. The main concern is that political turmoil within the government could cause a serious fight to break out over how the economy should be run. This leads to banks having to stay in limbo for a long time until things get figured out. Unfortunately, that is not something that the Italian banks can afford to have happen at the moment. The Dow Jones could possibly trade higher in December, because this month has been typically been good since it’s the holiday season. Historically, the Dow has traded higher for the month of December. There has only been five times in the last 22 years where the U.S. markets have traded lower in December. Again, it is highly dependant upon how the Fed acts when it meets to discuss a potential rate hike. That will ultimately be the deciding factor on where the Dow will trade to next.