Dow Jones futures dive on concerns about higher trade tariffs

New tariff threats are hammering risk appetite

Trump announced a new batch of tariffs on Thursday, hiking levels to Canada to 35% and including the Eurozone, which is currently in negotiations with US representatives. Apart from that, Trump also hiked the tariff baseline to all other countries to 15% or 20% from the previous 10%.

This announcement follows a plan to introduce a 50% tariff on all copper products, which will have a wide impact on the US industry and might lead to supply chain disruptions.

Meanwhile, the divergence among Fed policymakers keeps investors wondering about the bank’s rate-cut calendar. Waller and Daly reiterated their call for rate cuts in the coming months, while a more cautious Musalem suggested that interest rates should remain at current levels until there is more clarity about the inflationary impact of tariffs.

On the macroeconomic front, US Jobless Claims declined against expectations to their lowest level in seven weeks, which highlights the resilience of the labour market and curbs hopes of any monetary policy easing in July or September.

Dow Jones FAQs

What is the Dow Jones?

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.

What factors impact the Dow Jones Industrial Average?

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.

What is Dow Theory?

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.

How can I trade the DJIA?

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.