Dow Jones futures fall as surging oil prices stoke inflation concerns
- Dow Jones futures slip as soaring energy costs renewed inflation fears and pushed Treasury yields higher.
- Traders increased bets on a September Federal Reserve rate hike following recent hawkish signals from Fed officials.
- Wall Street opened the week lower, with investors bracing for manufacturing data and Friday’s crucial August jobs report.
Dow Jones futures fall by 0.45% to trade near 53,000 during European hours on Tuesday. Meanwhile, S&P 500 futures decline by 0.5%, to trade around 7,660, while Nasdaq 100 futures lose 0.83% to trade around 29,270.
US stock futures slid as investors absorbed a sudden surge in oil prices driven by renewed conflict in the Middle East. The resulting spike in energy costs has reignited inflation fears, driving Treasury yields upward and firming market expectations for a Federal Reserve (Fed) interest rate hike in September.
Traders rapidly increased their bets on a rate increase following recent comments from Fed officials, who signaled that further tightening remains on the table until inflation moves convincingly back toward the central bank's 2% target.
This pre-market pressure follows a weak start to the trading week on Wall Street, where all three major indices closed lower on Monday. The Dow Jones led the declines with a 0.7% drop, while the S&P 500 and Nasdaq Composite fell 0.33% and 0.12%, respectively.
Markets remain on edge as investors brace for a dense slate of economic data that will offer fresh clues about the trajectory of monetary policy. Key reports on U.S. manufacturing and services sector activity are expected later today, setting the stage for Friday's critical August Nonfarm Payrolls report.
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.