Dow Jones futures rebounds on strong Alphabet’s earnings, hopes of US-EU deal
- Dow Jones futures gains ground after a significant fall on Thursday, after a strong earnings report from Alphabet Inc.
- The US-EU tariff deal hopes have kept market sentiment upbeat.
- Investors await the Fed’s monetary policy, which will be announced on Wednesday.
Dow Jones futures trade slightly higher at the start of the European session on Friday. The 30-stock basket rebounds on strong guidance by tech-giant Alphabet and increasing investors’ confidence that the United States (US) and the European Union (EU) will reach a trade agreement before the tariff deadline on August 1.
At the time of writing, Dow Jones futures trade 0.1% higher to near 44,750. S&P 500 futures gain 08 points and ticks up to near 6,370.
The 30-stock basket fell 0.7% in Thursday’s session after shares of leading automaker Tesla plunged almost 8% on poor earnings show and rough guidance. Meanwhile, S&P 500 and NASDAQ gained sharply after Alphabet reported 14% revenue growth in second-quarter earnings and guided a significant chunk of capital expenditure in Artificial Intelligence (AI).
On the global front, hopes of a tariff deal between the US and the European Union (EU) have also come in as relief for investors. A report from the Financial Times (FT) showed on Wednesday that officials from both economies are close to signing a tariff deal, whose terms would mirror the US-Japan pact. Earlier this week, US President Donald Trump confirmed an agreement with Japan and reduced the baseline and automobile tariff rate to 15%.
Signs of global economic tensions easing often lead to an increase in the risk appetite of investors. Meanwhile, the US Dollar (USD) has also extended its Thursday recovery move on US-EU trade deal hopes. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises to near 97.60.
Going forward, the major trigger for the US market will be the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. As the Fed is widely anticipated to leave interest rates steady in the range of 4.25%-4.50%, investors will closely monitor comments from Chair Jerome Powell about the impact of tariffs on inflation in the near-term and longer horizon, and the likely monetary policy action in the remainder of the year.
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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