Dow Jones futures point to a negative opening after the latest Tariff threats
- Equity markets fall as Trump increases tariffs on the EU, Mexico, and Canada
- Concerns that higher import costs will heat inflation and weigh on growth are weighing on investors' appetite for stocks.
- Fed's Goolsbee warned on Friday that higher tariffs put further rate cuts into question.
Wall Street is expected to open the week in the same negative tone that closed the previous one. Trump’s threat to impose 30% tariffs on Europe and Mexico and 35% levies on Canada, three of its major trading partners, crushed risk appetite and sent most equity indexes tumbling.
The Dow Jones Industrial Average is showing the largest decline, with DJIA futures 0.63% down during the early European session. Futures of the S&P 500 Index drop 0.33% while Nasdaq Technology Index futures are posting losses of 0.22%.
New tariff threats weigh on risk appetite
These tariffs are higher than the 20% tariffs imposed on the EU on April 2, Liberation Day, or the 25% levies announced for Canada and Mexico. The reaction from the targeted countries, however, has been contained so far. Investors remain hopeful that trade deals are still possible, which is limiting the risk-averse reaction.
Concerns that higher prices on imports will heat inflation and might cause supply chain disruptions are weighing on investors’ appetite for imports ahead of the US Consumer Prices Index release, due on Tuesday, which might give further insight about the Federal Reserve's monetary policy plans.
The market is pricing two rate cuts in the second hald of the year, the first of them coming in September, but the strong US employment figures seen earlier this month and the higher roisks for inflation stemming from trade tariffs might prompt the Fed to adopt a more cautious view, which is likely to weigh on stocks.
On Friday, Chicago Fed President Austan Goolsbee warned that the new round of tariffs would muddle the outlook on inflation and pose additional challenges for policymakers to support the rate cuts the US president is calling for.
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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