Dow Jones futures rise on bets of further Fed rate cuts this year
- Dow Jones futures climb on expectations the Fed could deliver 50 bps of easing before year-end.
- Fed Chair Jerome Powell struck a cautious tone, stressing there is no urgency to speed up easing.
- US major banks cut their prime lending rates after the Fed’s rate reduction.
Dow Jones futures gain 0.35% to trade around 46,200 during European hours on Thursday, ahead of the opening of the United States (US) regular session. Moreover, the S&P 500 futures advance 0.48% to move above 6,600, while Nasdaq 100 futures surge 0.68% to trade near 24,400.
US stock futures rise after the first rate cut of this year by the Federal Reserve (Fed). The US central bank lowered the funds rate by 25 basis points (bps) and signaled a further 50 bps of easing before year-end, slightly above its June projections.
However, Fed Chair Jerome Powell adopted a cautious tone, describing the move as “risk management” amid labor market weakness, while emphasizing there is no urgency to accelerate easing. The newly appointed Governor Stephen Miran favored a larger 50 bps cut, leaving the committee less divided than expected. Moreover, the Bank of Canada (BoC) also cut its policy rate by 25 bps, while the Bank of England (BoE) and Bank of Japan (BoJ) are expected to maintain steady policy this week.
Major US banks, like JPMorgan Chase, Citigroup, Wells Fargo, and Bank of America, lowered their prime lending rates from 7.50% to 7.25% on Wednesday, following the Fed’s rate cut. On Wednesday’s regular session, the Dow rose 0.57%, while the S&P 500 edged down 0.1% and the Nasdaq fell 0.33%. By sector, financials, consumer staples, and materials outperformed, while technology, industrials, and consumer underperformed.
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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