Dow Jones futures move little as traders await Fed policy decision
- Dow Jones futures steady as traders adopt caution ahead of Fed rate decision on Wednesday.
- Traders will likely observe Fed’s Summary of Economic Projections, including the “dot plot,” for insights into the Fed’s policy outlook.
- US stocks may rise as strong retail and labor data boost Fed rate cut expectations despite hotter inflation.
Dow Jones futures remain steady near 45,750 during European hours on Wednesday, ahead of the United States (US) market open. Moreover, the S&P 500 futures decline 0.20% to trade near 6,600, while Nasdaq 100 futures depreciate 0.10% to trade around 24,2500. Wall Street will likely watch the US Federal Reserve (Fed) interest rate decision later in the day.
US stock futures struggle despite the Fed is widely expected to deliver a 25-basis-point rate cut in response to signs of a cooling labor market and subdued inflation. The Fed’s Summary of Economic Projections (SEP), the ‘dot plot,’ will be eyed, where each member of the Federal Open Market Committee (FOMC) expects the federal funds rate in the near future.
However, US markets may draw gains amid rising likelihood of multiple Fed interest rate cuts, with strong retail sales and labor data outweighing hotter inflation. Additionally, Morgan Stanley and Deutsche Bank projected 25-basis-point reductions at each of the Fed’s meetings in September, October, and December.
The US Senate narrowly confirmed US President Donald Trump’s nominee to the Fed Board, Stephen Miran, in a Monday evening vote, clearing the way for him to participate in policy decisions this week. Meanwhile, an appeals court rejected Trump’s bid to remove Fed Governor Lisa Cook over alleged mortgage fraud, ensuring she remains on the board while legal proceedings continue.
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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