Dow Jones Industrial Average brushes off trade headlines to worry about Fed
- The Dow Jones remained largely unchanged on Monday following a rebalancing late last week.
- Equity markets are broadly gearing up for the wait to this week’s Fed rate call.
- An interest rate cut is priced in as a sure thing, with investors already looking ahead to more rate cuts.
The Dow Jones Industrial Average (DJIA) stuck close to its opening bids on Monday, testing the waters near 45,860 as investors shuffle their feet ahead of the latest Federal Reserve (Fed) interest rate call slated for Wednesday. The Fed is fully expected to kick off another rate-cutting cycle on Wednesday.
Traders will be looking to see if the Fed meets or exceeds market expectations for rate cuts through the remainder of the year when the Summary of Economic Projections (SEP), also known as the 'dot plot' of policymakers’ rate expectations, is also released during Wednesday’s rate call. Markets are betting that the Fed will deliver three rate cuts before the end of the year, with rate markets pricing in nearly 75% odds that the Fed will cut rates by 75 basis points before January, according to the CME’s FedWatch Tool.
Despite the market’s overall confidence that the Fed has finally been bullied into a fresh rate-trimming stance, investor apprehension is still on the rise, with markets piling into Gold ahead of the Fed’s key meeting. XAU/USD hit fresh all-time highs on Monday, tipping the scales toward $3,700 per ounce.
Read more Gold news: Gold hits $3,680, eyes $3,700 as Fed decision looms
US President Donald Trump declared that fresh trade talks between his administration and China are “going well” and teased that further progress had been made on a deal surrounding TikTok. Trump initially vowed to get TikTok outright banned in the US in 2020, citing privacy concerns and spying on US constituents by the Chinese government. Trump issued an executive order in August of 2020, demanding that ByteDance sell its stake in the online app to a US company, and has proceeded to routinely delay, suspend, and alter his own goalposts well into his second term.
US Retail Sales figures for August are due on Tuesday, but overall impacts are likely to be muted as markets keep both eyes locked on the Fed’s rate call on Wednesday. Monthly Retail Sales figures are expected to ease to 0.3% MoM from 0.5%. While markets are unlikely to react strongly, backsliding Retail Sales volumes will be the cherry on top of slumping jobs data and stubborn inflation metrics as recession fears continue to grow.
Read more stock news: Nvidia stock weakens at start of week as China applies pressure
Dow Jones daily chart
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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