Dow Jones futures gains as risk sentiment improves on Fed rate cut bets
- Dow Jones futures rise as softer January CPI boosts Fed rate-cut expectations and improves risk sentiment.
- CME FedWatch shows 90% odds of March hold; markets price 25 basis point June cut at 52%.
- Traders turn cautious amid renewed concerns over high AI capex and potential structural industry disruptions.
Dow Jones futures rise 0.36% to around 49,750 during European hours on Monday. S&P 500 and Nasdaq 100 futures rise 0.39% and 0.37%, respectively, trading near 6,880 and 24,900. US regular markets will be closed amid Presidents’ Day, while trading activity in Asia is expected to remain subdued as China, South Korea, and Taiwan observe Lunar New Year holidays.
US index futures advance as risk sentiment improves following softer January Consumer Price Index (CPI) data, reinforced expectations that the Federal Reserve (Fed) could cut rates later this year. The CME FedWatch tool indicates investors now see nearly a 90% probability of the Fed holding rates steady in March, up from 81% a week earlier. Markets are pricing in a 25-basis-point cut in June at roughly a 52% probability.
Wall Street closed last week lower, with the Dow Jones falling 1.23%, the S&P 500 declining 1.39%, and the Nasdaq 100 dropping 2.1%, weighed down by losses in financials, communication services, consumer discretionary, and technology stocks.
Traders may adopt caution due to renewed concerns over elevated AI-related capital spending and potential structural disruptions across certain industries. Among megacap tech stocks, Apple, Amazon, Meta, Alphabet, and Broadcom ended the previous week in the red. Investors now look ahead to another round of corporate earnings for clearer direction on the outlook.
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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