Dow Jones Futures advance as Fed easing hopes boost risk appetite
- The Dow Jones Index Futures Index is trading 0.2% higher ahead of the opening times.
- Wall Street Indexes are pointing to a positive opening on a moderate risk-on mood amid Fed easing hopes.
- Investors remain confident that the Trump-Xi meeting next week will ease trade tensions.
Dow Jones Index futures are showing mild gains during Wednesday’s European morning session, extending Tuesday’s rebound as Fed Chair Jerome Powell cemented hopes of further monetary easing and sent trade jitters to the back seat.
The main Wall Street Indexes are set to open with moderate advances on Wednesday. The Dow Jones Index adds 0.2% to trade at 46,400, S&P futures gain 0.4% at 6,668, while the Nasdaq remains the biggest winner, with a 0.5% growth to 24,712.
Fed easing hopes are feeding risk appetite
US equities bounced up on Tuesday following dovish remarks by Fed Chairman Jerome Powell, who assessed that the labor market deterioration is a higher concern than inflation right now, which practically confirms a rate cut later in October, and raises expectations for another one in December.
These comments improved investors’ appetite for risk in a hitherto volatile session, with sentiment weighed by the escalating trade tensions as China and the US rolled out higher tariffs for container shops transporting a wide range of products from Crude Oil to toys.
The Dow Jones Index closed 0.4% higher while the S&P 500 and the Nasdaq Index dropped 0.16% and 0.76% respectively. The Sino-US trade rift is expected to weigh on risk appetite, but hopes are that the US President Donald Trump and his Chinese counterpart will ease tension at next week’s meeting in Korea.
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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