Dow Jones futures fall as traders adopt caution due to Fed independence concerns
- Dow Jones futures decline as market sentiment turned cautious amid growing concerns over the Fed's independence.
- President Trump announced the dismissal of Fed Governor Lisa Cook over allegations of mortgage fraud.
- Traders await Nvidia’s highly anticipated earnings report scheduled for Wednesday.
Dow Jones futures fall by 28% to trade around 45,200 during European hours on Tuesday, ahead of the opening of the United States (US) regular markets. Moreover, the S&P 500 futures decline by 0.26% to trade below 6,450, and the Nasdaq 100 futures fall by 0.30%, trading around 23,400.
US stock futures decline as market sentiment turns cautious amid rising concerns over Federal Reserve (Fed) independence after US President Donald Trump announced to remove Fed Governor Lisa Cook over alleged mortgage fraud. President Trump posted a letter on social media early Tuesday, saying that he was removing Fed Governor Cook from her position on the Fed's board of directors. However, Cook said that she will not resign as there is no cause exists for her to be fired. I will continue to carry out duties, she added.
The dismissal of the Fed Governor Lisa Cook may increase the chances of earlier interest rate cuts, given Trump’s ongoing pressure on the central bank to reduce borrowing costs. Additionally, Fed Chair Jerome Powell said at the Jackson Hole symposium last week that risks to the job market were rising, but also noted inflation remained a threat and that a decision wasn't set in stone.
Traders also adopt caution as Trump warned that he could impose a 200% tariff on Chinese goods if Beijing refuses to supply magnets to the United States (US). Moreover, he also threatened "subsequent additional tariffs" and export restrictions on advanced technology and semiconductors in retaliation for digital services taxes that hit American technology companies.
Traders will likely await Nvidia’s highly anticipated earnings report due on Wednesday, along with the upcoming release of the Q2 US Gross Domestic Product Annualized and July Personal Consumption Expenditures (PCE) Price Index data, the Fed's preferred inflation gauge.
In the previous regular session, the Dow Jones Industrial Average slipped 0.77%, the S&P 500 declined 0.43%, and the Nasdaq Composite eased 0.22%. Nine of the 11 S&P 500 sectors closed lower, led by losses in consumer staples, healthcare, and utilities.
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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