Dow Jones futures advance on upbeat Nvidia results, Fed cut hopes
Dow Futures rise 0.3% as the market digests Nvidia's quarterly earnings data.
The chipmaker's earnings beat forecasts, easing concerns of an overvaluation of the AI sector.
Market expectations of Fed cuts in September are providing additional support for equities.
Dow Jones futures are trading 0.3% higher a few hours ahead of the US market opening on Thursday. Positive earnings figures from the AI bellwether Nvidia and market hopes of Fed easing in September are fuelling a moderate risk appetite.
On Wednesday, chipmaker Nvidia reported quarterly results with revenues of USD 46.74 billion in the second quarter, beating expectations of USD 46.06 billion. The company also forecasted sales growth above 50% for this quarter, to ease fears about an excessive valuation of AI firms.
More specifically, the lower-than-expected data centre revenue and uncertainty about exports to China triggered an immediate adverse reaction, which later faded.
Fed easing hopes fuel demand for equities
Furthermore, Fed Williams fueled hopes of a September rate cut, affirming that interest rates will come lower at some point, and that, in his view, every monetary policy meeting is “live” for interest rate adjustments.
Futures markets are now pricing in an 87% chance of a rate cut in September, up from 75% last week. Hopes of easier financing conditions are supporting investors’ appetite for stocks, although the risk sentiment is likely to remain in check ahead of Friday’s PCE Prices Index release.
Investors will be looking at PCE inflation for further clues about the outcome of September’s meeting. The market consensus points to a steady headline inflation figure, at a 2.6% yearly rate, with the core inflation accelerating to 2.9% from 2.8% in June.
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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