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Dow Jones futures advance as traders expect Fed to hold rates steady in July

  • Dow Jones futures rise as the Federal Reserve is widely expected to hold interest rates steady at its upcoming meeting.
  • Rising oil prices from US-Iran tensions reignited inflation fears, pushing September rate hike expectations to 60.7%.
  • US indexes now look to upcoming corporate earnings for guidance after a tech slump sparked by a semiconductor sell-off.

Dow Jones futures gain 0.14% to trade around 52,450 during European trading hours on Monday. Meanwhile, S&P 500 futures and Nasdaq 100 futures advance 0.26% and 0.50%, trading near 7,520 and 28,920, respectively.

US stock futures gain ground as the Federal Reserve (Fed) is widely expected to hold interest rates steady at its upcoming meeting. However, markets price via the CME FedWatch Tool now reflect a 60.7% probability of a rate hike in September as United States (US)-Iran clashes drive oil prices higher, and resurfacing inflation risks are fueling expectations for rate hikes.

The US has launched its ninth consecutive night of strikes against Iranian targets. In response, Iranian officials declared that the ceasefire between the two nations has been effectively abandoned, opening the door for deepening disruptions to crucial energy pathways through the region's narrow waterways.

Following a tech-led slump driven by a sharp sell-off in semiconductor stocks, major US indexes are looking to upcoming corporate earnings for direction. Last week, the Nasdaq Composite dropped 2.9%, the S&P 500 fell 1.55%, and the Dow Jones lost 0.93%. Leading the downturn, the VanEck Semiconductor ETF plummeted nearly 9%, recording its third weekly drop in four weeks. Investors are now shifting their focus to upcoming high-profile quarterly reports from Alphabet, Tesla, and Intel.

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.

Author

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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