Dow Jones futures drop with trade tariffs souring sentiment and US NFP on tap
- Dow Jones futures anticipate a negative session opening with the index falling more than 1%.
- Concerns about tariffs and investors’ caution ahead of July’s NFP report are weighing on demand for equities.
- Renewed fears of trade tariffs have offset the enthusiasm about the upbeat earnings of tech giants.
Dow Jones futures point at a negative opening on Friday as a new list of trade tariffs by US President Trump offset investors’ enthusiasm about the upbeat earnings of the US tech giants, as the market shifts its focus to July’s Nonfarm Payrolls report.
Futures of the Dow Jones index trade 1.05% lower at the time of writing, the same decline shown by the S&P 500 Index futures, while the Nasdaq remains the biggest loser with a 1.25% decline.
Trade tariffs hurt investors' appetite for stocks
US President Trump put an end to the globalization era on Thursday, signing an executive order to impose trade tariffs on virtually every nation with levies ranging from 10% to 41%, and 50% levies for Copper, Steel, and Aluminium exports. Investors remain wary that Trump’s trade policy will contribute to boosting inflation and hampering economic growth.
This news has eclipsed the upbeat quarterly earnings posted by Amazon, Meta, Apple, and Microsoft released earlier this week, which feeds investors’ confidence in the Artificial Intelligence sector’s growth potential.
In the data front, today, all eyes will be on the US Nonfarm Payrolls report. Investors are expecting signs of a moderate cooling of the labour market to keep hopes of a September rate cut alive. A strong NFP reading would back the central bank’s hawkish stance and send equities lower.
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
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
