Dow Jones futures point to a neutral opening with US Payrolls on focus
- The Dow Jones Index remains steady near recent highs, as investors await a key US Nonfarm Payrolls report.
- US economy is expected to have created 75,000 new jobs in August.
- Weak employment data and dovish Fed speak increased hopes of Fed cuts and underpinned demand for equities.
Dow Jones futures are trading practically flat a few hours ahead of the US market opening on Friday. Wall Street indices are mixed with investors yearning for a Goldilocks paNonfarm Payrolls figure that confirms a Fed rate cut in September.
The Dow index is trading less than 0.1% below Thursday's close, at 45,670 at the time of writing. The S&P 500 Index moves 0.2% up, and Nasdaq Futures advance 0.5% ahead of the opening bell.
The major US equity indexes rallied on Wednesday, following a mix of soft US unemployment levels and strong services sector data, which strengthened the case for Fed easing in September, but without serious concerns about a significant economic slowdown.
Investors expect NFP numbers to cement Fed easing hopes
August ADP employment reading disappointed with a mere 54,000 increment in private payrolls. These numbers are well below the 65,0000 increase anticipated by the market consensus and about half of the 106,000 new jobs registered in July.
Later on, US weekly Jobless Claims showed an increase of 237,000 in the last week of August, which is the largest increment in requests for unemployment benefits since June. The Final reading beat expectations of a 230,000 increase after the previous week’s 229,00 reading.
These figures, coupled with more dovish comments from Fed officials, who warned about downside risks for the labour market and hinted at the possibility of a monetary easing move in September, underpinned demand for equities and triggered a moderate pullback on the US Dollar.
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.
Later today, August’s Payrolls report is expected to show a 75,000 increase in private employment, a similar figure to last months 73,000 increase that prompted investors to ramp up monetary easing bets and sent the USW Dollar on a tailspin.
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