Dow Jones futures edge higher ahead of Fed policy, Q2 GDP and tech earnings
- US equity futures trade slightly higher ahead of opening.
- Fed’s monetary policy, Q2 GDP and earnings from Microsoft and Meta will be key triggers for US stock markets.
- Investors expect the Fed to hold interest rates steady for the fifth straight meeting.
Dow Jones futures tick up during the European trading session on Wednesday. The 30-stocks basket edges higher after a two-day decline, with investors awaiting the outcome of the Federal Reserve’s (Fed) monetary policy meeting at 18:00 GMT.
At the time of writing, Dow Jones futures trade 0.15% higher above 44,650. S&P 500 futures gain 12 points and rises above 6,380.
According to the CME FedWatch tool, the Fed is certain to leave interest rates steady in the range of 4.25%-4.50%.
Investors will closely monitor the Fed’s policy announcement to get cues about when the central bank will resume its monetary-expansion cycle, which is paused in December. After the release of the Consumer Price Index (CPI) report of July, a slew of Fed officials guided that monetary policy adjustments are inappropriate at this point of time as the impact of tariffs announced by US President Donald Trump since his return to the White House has started feeding into prices.
However, Fed Vice Chair for Supervision Michelle Bowman, and Governor Christopher Waller argued in favor of an interest rate reduction as early as this month, citing downside risks to labor market.
Additionally, investors will also pay close attention to the preliminary Q2 Gross Domestic Product (GDP) data, which will be published at 12:30 GMT. The GDP data is expected to show that the economy grew at a robust pace of 2.4% after declining by 0.5% in the first quarter of the year.
Meanwhile, earnings report from Microsoft and Meta will also keep investors on the tenterhooks. Both tech-giants are expected to release their quarterly results after the opening bell.
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
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
