Dow Jones futures fell 0.52% to around 49,450 during the European session on Monday, while S&P 500 and Nasdaq 100 futures fell 0.58% and 0.82% to near 6,960 and 25,720, respectively. Risk aversion over Fed concerns is heightened after federal prosecutors reportedly opened a criminal investigation into Chairman Jerome Powell over the renovation of the Fed’s headquarters in Washington and whether he misled Congress about the scope of the project, according to The New York Times.
US index futures fell as investors assessed geopolitical risks, with US President Donald Trump reportedly weighing options against Iran. The unrest has entered its third week with hundreds of deaths reported in Iran, while US interventions in South America have added to the uncertainty.
US stocks could find support from the Federal Reserve’s dovish outlook following weaker-than-expected December jobs data. Nonfarm payrolls rose by 50,000, below November’s revised reading of 56,000 and market expectations of 60,000, while the unemployment rate fell to 4.4% from 4.6%.
Richmond Fed President Tom Barkin welcomed the lower unemployment rate, calling job growth modest but stable, while noting limited hiring outside of health care and artificial intelligence and uncertainty about what’s next for the labor market. CME Group’s FedWatch tool shows Federal Reserve funds futures pricing at roughly 95% interest rates unchanged at the January 27-28 meeting.
Market caution is increasing ahead of key US earnings announcements and looming inflation data that could influence Federal Reserve policy. Major US banks led by JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Morgan Stanley and Goldman Sachs are scheduled to announce their reports this week, along with results from Bank of New York Mellon, BlackRock and PNC Financial.
Dow Jones FAQs
The Dow Jones Industrial Average is one of the oldest stock market indexes in the world, consisting of the 30 most actively traded stocks in the United States. The index is price-weighted and not market capitalization-weighted. It is calculated by summing the component stock prices and dividing them by a factor that currently amounts to 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years, it was criticized for not being broadly representative enough because it tracks only 30 conglomerates, unlike broader indices such as the S&P 500.
There are many different factors that drive the Dow Jones Industrial Average (DJIA). The overall performance of the constituent companies disclosed in the company’s quarterly earnings reports is the headline performance. US and global macroeconomic data also contribute to its impact on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also affects the Dow Jones Industrial Average because it affects the cost of credit, on which many companies rely heavily. Therefore, inflation can be a key driver along with other metrics that influence the Fed’s decisions.
Dow Theory is a method of determining the fundamental trend of the stock market developed by Charles Dow. The basic step is to compare the trend 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. Size is a confirmatory criterion. The theory uses elements of peak and trough analysis. Dow Theory postulates three phases of a trend: accumulation, when smart money starts buying or selling; Public participation, when the wider public joins in; And distribution, when the smart money comes out.
There are a number of ways to trade the DJIA. The first is the use of ETFs that allow investors to trade the Dow Jones Industrial Average as a single security, rather than having to buy shares in all 30 component companies. A leading example of this is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures allow traders to speculate on the future value of an 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 purchase a share of a diversified portfolio of DJIA stocks and thus provide exposure to the overall index.
