Dow Jones futures rally as sentiment improves due to dovish tone surrounding Fed outlook
- Dow Jones futures surge as US labor data increases the odds of two interest rate cuts by the Fed.
- US stock markets may struggle as market sentiment weakened in response to President Trump’s sweeping reciprocal tariffs.
- Market caution prevails after the Trump administration dismissed BLS Commissioner Erika McEntarfer following a weaker-than-expected jobs report.
Dow Jones futures advance ahead of the US market opening on Monday, trading around 44,900, up by 0.46%, during European hours. Meanwhile, S&P 500 futures surge by 0.55% to near 6,300, and Nasdaq 100 futures appreciate 0.68% to trade above 23,000.
US stock index futures appreciate as market sentiment stabilizes, as Friday’s weaker United States (US) jobs report prompted market reaction to price in two interest rate cuts by the Federal Reserve (Fed). Traders are now pricing in 63 basis points (bps) of cuts by year-end, up from around 34 bps on Thursday, with the first cut seen in September. It is important to note that lower borrowing costs could support the economic activities in the US, the world’s largest economy.
US Nonfarm Payrolls (NFP) increased by 73,000 in July, compared to a 14,000 increase (revised from 147,000) seen in June. This figure came in weaker than the market expectation of 110,000. Additionally, the Unemployment Rate ticked higher to 4.2% in July from 4.1% in June, as expected.
However, the Dow declined 2.92%, the S&P 500 fell 2.36%, and the Nasdaq depreciated 2.17% in the previous session. The US stocks slumped as market sentiment struggled following US President Donald Trump’s sweeping reciprocal tariffs ranging from 10% to 41%, set to go into effect on August 1.
Additionally, traders would likely adopt caution following the Trump administration's dismissal of Bureau of Labor Statistics (BLS) Commissioner Erika McEntarfer after a weaker-than-expected jobs report. This action could be a broader strategy to undermine the credibility of official inflation data, with potential implications for markets and Fed policy debates.
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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