Dow Jones Futures jump as Fed easing hopes boost risk appetite
- Dow Jones futures point to a frail recovery on Wednesday.
- Wall Street is set to open mixed, with concerns of an AI bubble still weighing.
- Dwindling hopes of a Fed rate cut in December are adding pressure on equities.
Dow Jones Index futures are showing minor gains during Wednesday’s European morning session as market sentiment remains fragile on concerns about an overvaluation of tech stocks, as markets reassess their expectations of monetary easing by the Federal Reserve.
The main Wall Street Indexes are set to open mixed on Wednesday, following significant declines on Tuesday. The Dow Jones Index trades 0.1% higher, at the 47,300 area, while S&P futures posts losses below 0.1%, at 6,795. The Nasdaq remains the worst performer with the tech sector in the spotlight and drops 0.2% trading at 25,522 during the early European session.
Fears of an AI bubble increase
The CEOs of Morgan Stanley and Goldman Sachs spooked investors on Tuesday at an investment summit in Hong Kong, warning that markets might be heading to a significant correction in the next six months to a year. The overstretched valuations of AI-related firms bring back memories of the dot-com bubble at he start of the century.
Beyond that, the hawkish turn by the Federal Reserve (Fed), as chairman Jerome Powell warned about excessive confidence in a December rate cut and the wide divisions within the Board on the monetary policy path, is acting as headwinds for equity markets.
Sharp declines in tech stocks dragged Wall Street lower on Tuesday, with Pallantir Technologies leading losses, despite its positive quarterly forecasts, with Uber following closely as its earnings reports missed forecasts.
With the US Government shutdown entering its fifth week, the focus on Wednesday will be on the ADP Employment report. Private Payrolls are expected to have increased by 25,000, partially reversing the 32,000 net loss seen in September, but still well below the 150,000 average jobs created from 2010 to 2025.
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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