US stock futures slump as Middle East conflict enters fifth day
- US stock futures face selling pressure on mounting tensions between Israel and Iran.
- Iranian military forces struck ballistic missiles on the Israeli intelligence agency.
- The Fed is widely anticipated to keep interest rates steady on Wednesday.
US stock index futures face a sharp selling pressure during European trading hours on Tuesday. Investors dump US equity futures as the risk appetite of investors has diminished significantly amid uncertainty surrounding the future of the aerial war between Israel and Iran, and the outcome of the monetary policy by the Federal Reserve (Fed) on Wednesday.
At the time of writing, S&P 500 futures are down 0.6% slightly below the psychological level of 6,000. Down futures ease over 240 points, and slides to near 42,720.
Tensions between Iran and Israel have escalated as Tehran has struck ballistic missiles on Israeli intelligence agency Mossad’s headquarters during the European trading session, Tehran Times reported.
Tehran has accelerated attacks on Israel after the Israeli Defence Forces (IDF) confirmed that they have assassinated Ali Shadmani, Iran’s senior-most military official and Khamenei’s closest military advisor, according to CNBC.
Meanwhile, the US Dollar (USD) trades calmly, with the US Dollar Index (DXY) wobbling around 98.20. The US Dollar should has performed strongly amid heightening geopolitical tensions, however, its upside seems capped ahead of the Fed’s monetary policy announcement. Theoretically, demand for safe-haven assets, such as US Dollar, increases amid geopolitical uncertainty.
According to the CME FedWatch tool, the Fed is almost certain to leave interest rates unchanged in the range of 4.25%-4.50%. Therefore, the major trigger that will direct US equity markets will be Fed’s guidance on the monetary policy outlook for the remainder of the year, and economic and inflation forecasts.
In Tuesday’s session, investors will focus on the US Retail Sales data for May, which will be published at 12:30 GMT. The Retail Sales data, a key measure of consumer spending, is expected to have declined by 0.7% after a 0.1% growth seen in April.
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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