Dow Jones futures gain despite market caution due to Riyadh airport strikes
- US futures indices rise as oil prices may appreciate after deadly Houthi attacks on Riyadh’s airport prompt potential US action.
- Weak Consumer Sentiment and high Fed rate hike expectations for December keep investors cautious about economic growth.
- CME FedWatch tool suggests the probability of a Fed 25-basis-point rate hike this month is 19.4%.
Dow Jones futures advance by 0.21% to trade near 52,030 during European hours on Monday. S&P 500 futures gain 0.25% to around 7,880, while Nasdaq 100 futures rise 0.15% to near 31,150.
US stock futures post gains despite ongoing inflationary concerns, buoyed by expectations that crude oil prices could rise following deadly attacks on Riyadh’s King Khalid International Airport. The Houthi militants targeted the airport again on Sunday, just a day after an earlier strike left 12 people dead and over 300 injured. In response to the escalating violence, US President Donald Trump is considering joining Saudi Arabia in retaliatory actions against the Iran-backed Houthis in Yemen.
Economic data showed continued pressure on consumer sentiment, with the University of Michigan's Consumer Sentiment Index dropping to 46.3 in October, down from 48.1 in September and missing market expectations of 47.6. Meanwhile, expectations for Federal Reserve monetary policy shifted slightly: according to the CME FedWatch tool, the likelihood of a rate hike of at least 25 basis points this month fell to 19.4%, down from 24.4% the prior week. However, market participants remain confident in a year-end rate adjustment, pricing in an 86% probability of a rate increase at the Fed's December meeting.
These developments follow a strong performance on Wall Street last week, where all three major US stock indexes closed higher as a rally in technology shares helped offset anxieties surrounding rising bond yields and elevated oil prices.
Traders are bracing for a busy week as the third-quarter earnings season kicks off with reports from major financial institutions. JPMorgan, Goldman Sachs, Citigroup, and Wells Fargo are set to announce results on Tuesday, with Bank of America and Morgan Stanley following on Wednesday. In addition to corporate earnings, market participants will closely watch key inflation updates, with the September Consumer Price Index (CPI) and Producer Price Index (PPI) scheduled for release on Wednesday and Thursday, respectively.
Analysts at Rabobank highlight that the rally in US equities broadened out, with the S&P 500 closing “46 points higher at 7811” on Friday and posting “strong gains across the real estate, consumer discretionary, healthcare and financial sectors.”
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.