Dow Jones futures decline due to loan fraud, US-China tensions
- Dow Jones futures decline as market sentiment sours following loan fraud disclosures by two US regional banks.
- Zions posted a $50 million Q3 loss, while Western Alliance sued Cantor Group V, LLC over alleged fraud.
- US index futures face challenges due to increased risk aversion amid escalating US-China tensions and the government shutdown.
Dow Jones futures fall 0.61% to move below 45,900 during European hours on Friday, ahead of the opening of the United States (US) regular session. The S&P 500 futures decline 0.88% to trade near 6,600, while Nasdaq 100 futures plunge 0.96% to break below 24,600 at the time of writing.
US index futures lose ground as market sentiment remains subdued after two US regional banks disclosed commercial loan fraud, increasing concerns about regional bank credit quality. US bank stocks, including Zions Bancorporation, Jefferies, and Western Alliance, tumbled on Thursday as investor concerns rose over sector risks linked to two major auto bankruptcies. Investors now look ahead to earnings reports from other regional lenders, including Comerica and Fifth Third.
On Thursday’s regular session, the Dow Jones declined 0.65%, the S&P 500 fell 0.63%, and the Nasdaq 100 lost 0.47%, with financials leading the declines. Zions Bancorporation shares dropped 13% after revealing a $50 million third-quarter loss on two commercial and industrial loans from its California division. Western Alliance Bancorporation fell nearly 11% after the bank announced a lawsuit alleging fraud by Cantor Group V, LLC.
Risk aversion rises amid the escalating trade tensions between the United States (US) and China, the world’s two largest economies. US Trade Representative Jamieson Greer and Treasury Secretary Scott Bessent criticized China’s plans to restrict rare earth exports, calling them “economic coercion” and “a global supply chain power grab.”
US shares also face challenges due to risk-off sentiment, driven by the prolonged US government shutdown. The impasse will continue into next week as the US Senate once again failed to pass a Republican bill to extend funding and end the stalemate.
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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