Dow Jones futures advance as traders expect Fed to reduce interest rates
- Dow Jones futures gain ground as market sentiment improves on Fed rate cut bets.
- Traders broadly anticipate the Federal Reserve will deliver a 25-basis-point rate cut on Wednesday.
- Morgan Stanley and Deutsche Bank now project that the US central bank will implement three rate cuts this year.
Dow Jones futures climb by 0.13% to trade above 45,900 during European hours on Monday, ahead of the United States (US) market open. Moreover, the S&P 500 futures advance 0.15% to trade near 6,600, while Nasdaq 100 futures edge up 0.06% to trade above 24,100.
US stock futures appreciate as market sentiment improves ahead of the looming Federal Reserve’s (Fed) policy decision due on Wednesday. Traders anticipate the US Federal Reserve (Fed) will cut rates by 25 basis points at its September meeting, with a slim possibility of a 50-basis-point move. Markets have also priced in continued easing through 2026 to guard against a potential recession.
The University of Michigan’s (UoM) preliminary Consumer Sentiment Index released Friday showed consumer sentiment fell to 55.4, worse than expected 58.0 in September, while long-run inflation expectations rose to 3.9% amid concerns over tariffs. However, investors are betting inflation remains subdued enough for the Fed to cut rates next week and possibly beyond.
Reuters reported that Morgan Stanley and Deutsche Bank now expect the Federal Reserve to deliver three rate cuts this year, after recent data pointed to easing inflation pressures. In separate notes on Friday, the brokerages projected 25-basis-point reductions at each of the Fed’s remaining meetings in September, October, and December.
The NY Empire State Manufacturing Index is set for release later in the North American session, with economists surveyed by Dow Jones forecasting a reading of 4.5, down sharply from the prior 11.9. Traders are also keeping their eyes on whether President Donald Trump's economic adviser Stephen Miran will be sworn in as a Fed governor before the policy meeting.
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.