Dow Jones futures climb on rising odds of further Fed rate cuts

Dow Jones futures advance as market sentiment strengthens amid growing expectations of additional Fed rate cuts.
CME FedWatch Tool prices in 95% odds of an October Fed cut and 85% for December.
US stock indices rise as technology and semiconductor stocks gain.

Akhtar Faruqui FXStreet

Dow Jones futures added 0.13% to trade around 47,100 during European hours on Monday, ahead of the regular session opening in the United States (US). The S&P 500 futures gain 0.27% to remain above 6,750, while Nasdaq 100 futures rise 0.45% to trade around 25,100.

US index futures appreciate as the market sentiment improves amid rising odds of the US Federal Reserve (Fed) delivering rate cuts in the upcoming meetings. The CME FedWatch Tool suggests that markets are now pricing in a 95% chance of a Fed rate cut in October and an 85% possibility of another reduction in December.

US senators failed to pass spending proposals to reopen the federal government for a fourth time, extending the ongoing shutdown into a new week. The government shutdown has delayed the release of key economic data, including September’s Nonfarm Payrolls report. US ADP Employment Change and Job Openings data indicate a softening labor market and strengthen expectations of an imminent rate cut.

Moreover, Fed Governor Stephen Miran doubled down on his belief that the Fed has a lot more room to cut its way to neutral interest rates. Miran also said that “I hope we'll have the needed data by the October FOMC meeting.” “Policy has become much more restrictive this year.”

Last week, all three major indices hit new record highs, driven by gains in technology and semiconductor stocks, following OpenAI’s $6.6 billion share sale, valuing the company at $500 billion and news of a landmark partnership with South Korean tech giants Samsung and SK.

Dow Jones FAQs

What is the Dow Jones?

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.

What factors impact the Dow Jones Industrial Average?

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.

What is Dow Theory?

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.

How can I trade the DJIA?

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

FXStreet

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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