Dow Jones futures rise on dovish Fed outlook, chip stocks outperform
- Dow Jones futures advance amid easing risk aversion, driven by the rising odds of the Fed rate cuts.
- Semiconductor stocks outperformed after Trump clarified that his 100% tariff on imported chips would exempt US companies.
- Fed Governor Christopher Waller is emerging as a leading contender for the role of Fed chair.
Dow Jones futures advance during early European hours, ahead of the market opening in the United States (US) on Friday, trading above 44,100, up by 0.14%. Meanwhile, S&P 500 futures rise by 0.16% to 6,370, and Nasdaq 100 futures appreciate 0.18% to trade around 23,300.
US stock futures receive support from easing risk aversion due to rising odds of the US Federal Reserve (Fed) delivering a rate cut in September, with expecting another possible move in December. Traders are pricing in nearly a 93% possibility of a 25 basis point (bps) cut in September, up from 48% a week ago, according to the CME FedWatch tool.
The US Initial Jobless Claims rose to 226K for the week ending August 2, against the expected increase of 221K and the previous week’s 218K rise. The increased jobless claims in the United States (US), along with the weaker July US Nonfarm Payrolls (NFP) data, have boosted the dovish sentiment surrounding the Fed policy outlook.
President Trump has nominated Stephen Miran, chair of the Council of Economic Advisors, to succeed Adriana Kugler on the Federal Reserve Board of Governors. Trump’s plans to replace Fed Chair Powell will be observed as Fed Governor Christopher Waller, seen as more dovish, is emerging as a top candidate to serve as the central bank’s chair, per Bloomberg.
US markets showed a mixed performance on Thursday’s regular market. The Dow Jones depreciated 0.51% and the S&P 500 fell 0.08%, while the Nasdaq Composite advanced 0.35%. Semiconductor shares outperformed as US President Donald Trump clarified that his 100% levy on imported chips would exempt firms manufacturing within the US.
Traders may adopt caution on Friday’s regular market as Trump’s sweeping retaliatory tariffs took effect on Thursday, with rates ranging from 10% to 41%, fueling concerns about their potential impact on the US economy.
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.
