Dow Jones Futures edge up as AI, Fed jitters ease
- Dow Jones Futures are posting marginal gains on Friday.
- Wall Street is likely to open with moderate gains as interest rates and AI concerns ease.
- The mild risk-off sentiment seen in Asia and Europe is limiting investors' appetite for equities.
Dow Jones Index futures are showing marginal gains during Friday’s European morning session, retracing some of Thursday's reversal. Investors' concerns about the valuations of the AI sector companies and the impact of the hawkish message from the Federal Reserve seem to have eased, although market sentiment has remained sour in Europe and Asia, keeping appetite for stocks limited.
The main Wall Street Indexes are set to open with moderate advances on Friday. The Dow Jones Index adds less than 0.1% at the time of writing, trading right above 47,700, while the S&P futures advances 0.7% reaching levels past 6,900, with the Nasdaq showing the strongest performance, with a 1.20% gain to 26,194.
US equities dropped on Thursday, as the Federal Reserve Chairman, Jerome Powell, rattled markets, putting into question a widely expected third interest rate cut in December. Powell highlighted the diverging views within the committee amid the conflicting projections of employment and inflation and warned that further reductions are "far from a foregone conclusion.
Tech shares led losses on Monday, with Meta and Microsoft Shares dropping 11.3% and 2.9% respectively, after reporting larger capital expenses. This news revived investors' concerns about the excessive valuation of AI companies, which, coupled with dwindling hopes of lower borrowing costs, hurt confidence in the tech sector.
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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