Dow Jones futures advance ahead of ISM Services PMI
- Dow Jones futures climb as weak US labor data tempered market expectations for a September rate hike.
- The CME FedWatch tool shows September Fed rate hike odds fell to 45.0%, down from 48.3% just one week ago.
- US index futures gain after Wall Street built record momentum last week, with a 2% Dow Jones rally.
The Dow Jones futures gain 0.18% to trade above 53,280, while S&P 500 futures rise 0.46%, trading near 7,560. Meanwhile, Nasdaq 100 futures advance 1.03% to trade near 29,860 during European trading hours on Monday.
Traders will likely be closely monitoring the US ISM Services PMI due later in the day for immediate direction, though the primary focus has shifted to Wednesday’s release of the Fed's June policy Meeting Minutes for clearer guidance on the future path of interest rates.
US stock futures climb as weak US labor data force markets to temper expectations for a September hike. The CME FedWatch tool indicates that markets price in 45.0% of 25-basis-point Fed rate hike in September, down from the 48.3% a week ago. However, financial markets are currently pricing in around a 76% probability of rate hikes by year-end.
June's Nonfarm Payrolls (NFP) grew by just 57,000, well below the 110,000 forecast. While the headline unemployment rate unexpectedly ticked down to 4.2% from May's 4.3%, the aggressive slowdown in hiring underscores a broader economic cooling.
Additionally, easing oil prices have helped dampen the inflationary pressures that previously heightened fears of aggressive rate hikes. Energy markets moved lower due to recovering flows through the Strait of Hormuz and the prospect of increased OPEC+ supply.
US index futures gain after Wall Street built its record-setting momentum last week, with the Dow Jones rallying nearly 2% to approach the 53,000 milestone, while the S&P 500 and Nasdaq 100 advanced 1.8% and 2.1%, respectively. These market gains developed despite a pullback in semiconductor stocks. Instead, the rally was fueled by the healthcare, financials, and industrials sectors, all of which closed the week at fresh record highs.
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
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