Dow Jones points to a moderate correction from Friday’s record highs

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Dow Jones futures are showing a 0.20% decline a few hours ahead of Monday's opening.

Dow Jones futures are showing a 0.20% decline a few hours ahead of Monday's opening.

Wall Street is likely to show some correction after the sharp rallies triggered by Fed Powell's Dovish turn.

Nvidia's quarterly earnings, due on Wednesday, and Friday's PCE Price Index figures are likely to drive equities this week.

Dow Jones futures point to a mild pullback from the all-time highs at 45,750 reached on Friday amid the strong risk appetite triggered by Federal Reserve Chairman Jerome Powell’s dovish rhetoric at the Jackson Hole meeting of central bankers.

The major Wall Street indices surged on Friday after Powell pointed to the increasing risks for the labour market and acknowledged the need for less restrictive monetary policies to avert a deep economic downturn.

Inflationary risks, his primary concern to date, took a backseat on Friday. Powell assessed that the base case for a short-lived impact of tariffs looks reasonable, which opens the door for an interest rate cut after September’s Monetary Policy meeting.

Nvidia results and PCE Inflation in the spotlight this week

Later today, New York Fed President John Williams and Dallas Fed President Lorie Logan are likely to give further insight into September’s decision. Before that, US New Home Sales will show the momentum of the property market.

The highlights of the week, however, will be Nvidia’s quarterly earnings, due on Wednesday, amid increasing doubt about the valuations of AI giants, ahead of Friday’s Personal Consumption Expenditures (PCE) Price Index.

Friday’s PCE inflation is expected to show that inflation continues its uptrend, which might pose a serious challenge for the central bank’s monetary policy setting and trigger a significant reversal in Equity markets.

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.