Dow Jones Futures hesitate as markets turn cautious

POPULAR ARTICLES

Dow Jones Index futures are wavering near Tuesday’s closing levels, around the 46,300 area, during the early European session on Wednesday.

The Dow Jones Index wavers around Tuesday's closing, with risk appetite waning.
Most US equity indices are flat, pointing to a neutral Wall Street opening on Wednesday.
Soft US business activity data and Fed Powell's comments failed to cheer investors on Tuesday.

Dow Jones Index futures are wavering near Tuesday’s closing levels, around the 46,300 area, during the early European session on Wednesday. The main European indices are in the red after a choppy session in Asia as investors’ appetite for risk faded amid ongoing geopolitical risks.

Wall Street Indexes are set to a neutral opening on Wednesday. The Dow Jones Index futures are practically flat, at 46,310 at the time of writing, while the S&P 500 and the Nasdaq futures advance less than 0.1% each.

Tuesday’s data was not particularly supportive, as US business activity slowed down for the second consecutive month in September, in line with expectations. Firms claim that tariffs are pushing costs higher, while the fierce competition and weaker demand limit their ability to hike prices.

Somewhat later, Fed Chair Jerome Powell reiterated the challenges the Fed faces in navigating a softening labor market and higher inflationary risks, warning that further interest rate cuts are not guaranteed. These comments, however, did not alter the market consensus that the bank will cut rates in the two remaining meetings this year.

In the absence of key macroeconomic releases on Wednesday, the sour market sentiment is likely to keep demand for equities subdued, as investors await US GDP and Jobless Claims figures on Thursday and the PCE Prices Index release on Friday.

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.