Dow Jones futures edge higher, likely on growing expectations of Fed rate cuts
- Dow Jones futures gain ground on rising odds of further rate cuts by the Federal Reserve.
- Traders may adopt caution amid concerns over a possible US government shutdown.
- Nvidia’s $100 billion deal with OpenAI has sparked concerns over the longevity of the AI infrastructure boom.
Dow Jones futures rise 0.35% to trade above 46,700 during European hours on Monday, ahead of the United States (US) regular markets opening. Meanwhile, the S&P 500 futures climb 0.41% to move above 6,700, while Nasdaq 100 futures surge 0.52% to trade near 24,850.
US index futures advance over the rising likelihood of the US Federal Reserve (Fed) delivering another interest rate cut in October. The CME FedWatch Tool suggests that markets are now pricing in nearly an 88% chance of a Fed rate cut in October and a 65% possibility of another reduction in December.
Traders may adopt caution on concerns over the possible shutdown of the United States (US) government. US President Donald Trump is scheduled to meet congressional leaders at the White House on Monday in a last attempt to avoid a government shutdown, with federal funding set to expire Tuesday night. The shutdown could begin on October 1 in the case of no deal.
President Trump increased market uncertainty by sharing plans to impose a 100% tariff on imports of branded or patented pharmaceutical products from October 1, unless a pharmaceutical company is building a manufacturing plant in the US. Trump also unveiled tariffs of 50% on kitchen cabinets and bathroom vanities and 25% on trucks.
Nvidia’s $100 billion partnership with OpenAI has raised doubts about the sustainability of the AI infrastructure boom. Despite being private and losing billions in cash, OpenAI’s aggressive dealmaking has helped propel markets to record highs. The $500 billion AI startup has struck massive agreements with Nvidia, Oracle, CoreWeave, and others.
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
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.
