Dow Jones futures steady ahead of US Retail Sales data
- Dow Jones futures move little as traders await key US July Retail Sales data.
- Soft PPI data pushed the probability of a September Fed rate hike down to 34.8%.
- The S&P 500 reached new record highs, with major indexes posting solid gains on Thursday.
Dow Jones futures remain subdued around 53,910 during European hours on Friday. Meanwhile, S&P 500 futures move little, hovering around 7,820, and Nasdaq 100 futures inch lower by 0.09%, trading near 30,160.
US stock futures remain little changed as traders adopt a cautious stance ahead of the United States July Retail Sales data set to be released later today. Cooling inflation metrics have significantly shifted expectations surrounding the Federal Reserve's monetary policy outlook. According to the CME FedWatch Tool, markets are currently pricing in a 32.4% probability of a rate hike at the upcoming September meeting, a noticeable drop from the 40.6% probability recorded immediately following the latest inflation numbers.
The shift in rate expectations follows soft wholesale inflation data from the Bureau of Labor Statistics, which reported that US producer prices for goods and services were flat in July. This reading came in below the expected 0.2% growth and followed a revised 0.1% decline in June. Excluding volatile food and energy components, the core Producer Price Index (PPI) rose 0.2%, slightly undershooting consensus forecasts of 0.3%. On an annual basis, headline PPI rose 4.7% year-over-year in July, while core PPI climbed 4.2% over the same period.
This subdued inflation outlook built upon bullish momentum from the previous session, where major indexes advanced, and the S&P 500 reached fresh record highs. During regular trading on Thursday, the S&P 500 gained 0.65%, and the Nasdaq Composite added 0.81%, positioning both benchmarks for their third consecutive weekly gain. The Dow Jones Industrial Average also rose by 70 points, though it remains on track to finish the week lower.
Tech leadership broadens as equal-weighted S&P 500 hits fresh high
Strategists at Deutsche Bank highlight that the latest leg of the US equity rally “was aided by a recovery for the Magnificent 7 (+1.20%) as well as tech stocks more broadly as the NASDAQ (+0.81%) and the Philly semiconductor index (+0.46%) also advanced.” They add that “it was a positive day more broadly with the equal-weighted S&P 500 (+0.74%) outperforming and hitting a new high as well,” underscoring that gains are extending beyond the mega-cap complex into the wider market.
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.