Dow Jones futures slump on Middle East conflicts, upside US inflation risks
- US equity futures face selling pressure amid fears that the US could strike Iran.
- US President Trump aims to restrict Iran from building nuclear weapons.
- The Fed held its borrowing rates steady in the range of 4.25%-4.50% on Wednesday.
Dow Jones futures trade lower during European trading hours on Thursday as fears of the United States' (US) entry in the aerial war between Israel and Iran has diminished demand for risk-perceived assets.
At the time of writing, Dow Jones futures are down 0.35% to near the round-level of 42,000, S&P 500 futures ease almost 25 points and slump to near 5,955.
Meanwhile, the US Dollar (USD) ticks up, with the US Dollar Index (DXY) ending higher to near 99.00. The Greenback remains supported as Middle East conflicts have increased demand for safe-haven assets.
A report from Bloomberg showed that the United States is considering striking Iran. The report showed that senior US officials are preparing for the possibility of a strike on Iran in the coming days.
Earlier in the day, US President Donald Trump stated that he has not made up his mind whether he will strike Iran or not, but has made it clear that he will not allow Tehran to build nuclear warheads. “I may do it. I may not do it,” Trump said when asked whether he would launch airstrikes on an Iranian nuclear facility earlier in the day, NBC News reported.
Meanwhile, US equity markets will remain closed on Thursday on account of Juneteenth Day.
Apart from tensions between Israel and Iran, a clear message from the Federal Reserve (Fed) that inflationary pressures are expected to rise due to the fallout from the tariff policy imposed by US President Trump has weighed on US equity futures.
On Wednesday, the Fed kept its key borrowing rates in the current range of 4.25%-4.50% for the fourth time in a row, as expected. Fed Chair Jerome Powell stated in the press conference that the monetary policy is now “modestly restrictive, and we [US central bank] have to keep rates high to get inflation all the way down”.
Assuming that new economic policies by Donald Trump have de-anchored inflation expectations, the Fed revised its projection for the interest rate target higher to 3.4% for both 2026 and 2027.
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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