Dow Jones Futures edge up with sentiment frail amid the US shutdown
- Dow Jones futures edge up 0.1% to 46,420 ahead of the market opening on Friday.
- Investors' sentiment remains frail amid the US shutdown and the divergences among Fed officials.
- The Michigan Consumer Sentiment Index is expected to have deteriorated for the third consecutive month in October.
Dow Jones Index futures are showing minor gains during Friday’s European morning session, but remain close to the weekly low on Thursday. The lack of progress on the US government shutdown and the divergence among Federal Reserve officials regarding monetary policy are weighing on risk appetite.
Wall Street Indexes are set to a mild positive opening on Friday, following Thursday’s reversals. The Dow Jones Index ticks up 0.1% to levels right above 46,420. The S&P 500 drops take up another 0.1% to 6,735, with the Nasdaq Index showing the same advance to 24,972.
Dow Jones is correcting from all-time highs
The Dow Jones Index extended its reversal from the all-time highs beyond the 47,000 level hit last week, amid increasing global political uncertainty and the ongoing standoff between Senate Democrats and Republican leaders, which is likely to lead to a protracted government shutdown.
In the absence of key fundamental releases, the leading market driver in the US is the comments by Fed officials, which continue to show diverging views on the path forward. NewYork Fed President John Williams and San Francisco Fed President Mary Daly called for further monetary easing to support a softening labour market, while Governor Michael Barr warned that cutting rates too fast might lead to persistent inflation.
In the economic docket, the University of Michigan Consumer Sentiment Index will provide one of the few data points this week. The market consensus anticipates a further deterioration of consumer confidence, with the Index dropping to 54.1 in October, from September’s 55.2 reading.
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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