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    Stock Market Today: Futures slide ahead of the opening bell

    Source Fxstreet
    Mar 5, 2024 10:51
    • Nasdaq futures decline sharply ahead of the opening bell on Tuesday.
    • Fed Chairman will testify on the semi-annual Monetary Policy Report this week.
    • Factory Orders and ISM Services PMI data will be released later in the day.

    S&P 500 futures fall 0.36%, Dow Jones futures drop 0.15%, and Nasdaq futures lose 0.74%.

    S&P 500 (SPX), Dow Jones (DJIA), and Nasdaq (IXIC) indexes closed on Monday with a 0.12% loss, a 0.25% drop, and a 0.41% fall, respectively.

    What to know before stock market opens

    The Utilities Sector gained 1.65% on Monday, beating out the Real Estate Sector, which climbed 1.07% on the day. The Communications Services Sector declined 1.51% as the biggest-losing sector on Monday, followed closely by the Consumer Discretionary Sector, closing 1.27% lower.

    Hewlett Packard Enterprise Co. (HPE) climbed 10.22% to kick off the new trading week, ending Monday at $17.15 per share. Tesla Inc. (TSLA) was the biggest decliner on the first trading day of the week, shedding 7.16% and wrapping up at $188.14 at the closing bell.

    Assessing the latest developments in equity markets, “the quiet start to the week for US equities did see the Magnificent 7 (-0.85%) under-perform, with slightly more moderate losses for the NASDAQ (-0.41%),” said Jim Reid, global head of economics and thematic research at Deutsche Bank, and continued:

    “There were contrasting moves within the Magnificent 7, with Tesla down -7.16% amid new price cuts and discounts by EV maker, while Nvidia (+3.60%) overtook Saudi Aramco to become the third largest company in the world by market cap. On the other hand, the equal-weighted version of the S&P 500 was up +0.24% on the day, as utilities (+1.65%) and banks (+1.58%) outperformed. Back in Europe, the STOXX 600 (-0.03%) was flat on the day, but there was a noticeable underperformance from the FTSE 100 (-0.55%).” 

    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.

    S&P and Nasdaq futures are presented by CME e-minis and Dow Jones futures are presented by CBOT e-mini.

    Markets await US data, Fed Chairman Powell testimony

    The US economic docket will feature January Factory Orders and February ISM Services PMI report on Tuesday. 

    Speaking on the policy outlook on Monday, Atlanta Federal Reserve (Fed) President Raphael Bostic said that he expects the Fed to lower the policy rate by 25 basis points twice in 2024. “Inflation is still widespread, with more than the usual share of items increasing above 5% with trimmed mean remaining stuck at 2.6%,” Bostic added, Reuters reports.

    In its Semi-annual Monetary Policy Report published on Friday, the Fed reiterated that it’s not appropriate to reduce the policy rate until they have greater confidence inflation will move sustainably toward 2%.
    Fed Chairman Jerome Powell will present the monetary policy report and respond to questions in a two-day testimony before the Congress, starting Wednesday.

    On Friday, the US Bureau of Labor Statistics will release February jobs report, which will  include Nonfarm Payrolls, the Unemployment Rate and wage inflation figures.

    Risk sentiment FAQs

    What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

    In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

    What are the key assets to track to understand risk sentiment dynamics?

    Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

    Which currencies strengthen when sentiment is "risk-on"?

    The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

    Which currencies strengthen when sentiment is "risk-off"?

    The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

    Disclaimer: For information purposes only. Past performance is not indicative of future results.
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