DJIA futures dropped close to 0.7% on Wednesday, falling from a session high near 49,250 to a fresh session low around 48,700 during Powell’s press conference before staging a sharp final-hour recovery that returned price to trade close to 48,790. The day showed steady selling through the FOMC decision and into the press conference, with the late-session bounce off the lows recouping roughly a third of the day’s decline as buyers stepped in around the 48,700 area.
The Federal Reserve (Fed) held the federal funds rate at 3.50% to 3.75% for a third consecutive meeting, hardening its inflation language to ‘elevated’ from ‘somewhat elevated’ while citing higher global energy prices and a high level of uncertainty around Middle East developments. The 8-4 Federal Open Market Committee (FOMC) vote drew the most dissents since October 1992: Stephen Miran preferred a 25-basis-point cut, while Beth Hammack, Neel Kashkari, and Lorie Logan voted to hold but opposed the easing bias inserted into the statement. In the press conference, Chair Powell described the decision as ‘a closer call than in March,’ said the energy price surge had not yet peaked, and noted that the number of officials seeing a hike as likely as a cut had moved up.
Powell added that a shift away from the easing bias could come as early as the next meeting and that he wanted to see energy and tariff pressures end before any rate cuts, hawkish-tilted remarks that pushed the US Dollar to fresh highs and pressured equities into fresh session lows before a relief rally trimmed the day’s decline into the close.
Dow Jones 5-minute chart
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.
Read the full article here
