Dow Jones futures gains due to increased Fed rate cut bets, easing US-China trade concerns
- Dow Jones futures improve on the increased likelihood of further Fed rate cuts by year-end.
- US stock futures receive support due to moderating Trump’s remarks on China.
- The CME FedWatch Tool indicates pricing in nearly a 96% chance of a 25-basis-point Fed rate cut in October.
Dow Jones futures climb 1.12% to trade above 46,200 during European hours on Monday, ahead of the opening of the United States (US) regular session. The S&P 500 futures gain 1.52% to rise toward 6,700, while Nasdaq 100 futures surge 2.07% to trade around 24,900 at the time of writing.
US index futures rise due to the increased likelihood of US Federal Reserve (Fed) further rate cuts by year-end. The CME FedWatch Tool suggests that markets are now pricing in nearly a 96% chance of a 25-basis-point Fed rate cut in October and an 87% possibility of another reduction in December.
Consumer confidence in the United States (US) deteriorated slightly in early October, supporting the Fed rate cut bets. The preliminary University of Michigan's Consumer Sentiment Index edged lower to 55.0 for October, from 55.1 in September. This print came in better than the market expectation of 54.2. Meanwhile, the Current Conditions Index improved to 61.0 from 60.4, while the Expectations Index retreated to 51.2 from 51.7.
Market sentiment also improves amid easing US-China trade tensions. US President Donald Trump posted on Truth Social on Sunday, noting that China’s economy “will be fine” and that the US wants to “help China, not hurt it.” On Sunday, Trump said that there’s no need to meet China’s President Xi Jinping at the upcoming South Korea summit and threatened to impose 100% tariffs on Chinese imports.
In the previous regular session, Wall Street recorded its worst day since April, with the Dow Jones dropping 1.9%, the S&P 500 declining 2.71%, and the Nasdaq tumbled 3.56%, marking. Losses were led by tech and chip stocks, including Nvidia, AMD, and Tesla.
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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