Dow Jones Industrial Average Index
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The Dow Jones Industrial Average, which contains 30 major Wall Street firms of the so-called "old economy", climbed to its fresh historical highs above 42,000 at closing price on September 19 following the U.S. Federal Reserve's jumbo 50 basis points rate cut the night before. More monetary easing is projected, even though Fed chair Jerome Powell commented that central bankers' forecasts "don't point to urgent action". Cheaper funding definitely has a positive impact on further bullish stance, yet the smaller caps' benefit theory is not borne out by the facts right now, as the Russell 2000 index behind smaller caps segment is still lagging behind, not daring to rewrite its own record book at the moment. This is seemingly going to happen sooner or later as well, yet now large components are clearly getting advantages, despite the weakest links of the Dow like sinking Boeing and wallowing Disney, added by profit taking in generally accepted anti-crisis assets like Coca-Cola, Procter & Gamble, McDonald's or Walmart, offset a speedy growth in the Dow flagmans, currently led by shining Caterpillar (+5.15% during one latest trading session), Salesforce (+5.32%) and Goldman Sachs (+4.03%).
Big marketplaces spearheaded by Amazon and consumer discretionary stocks like the Home Depot or Target may get the most out of the situation of cheaper borrowing costs, while the financial segment enjoys reducing the load on bank balances because of rising prices for their enormous bond portfolios, which is the opposite side of decreasing bond yield expectations. Deeper rate cuts would help small-cap firms in boosting income, as most of them hold floating-rate debt, yet there is another angle here, that of the lingering uncertainty over the U.S. economy's actual direction. A one-off 0.5% recalibration of the Fed's policy, with another 0.5% to 0.75% of cuts on the table before Christmas may cause ambiguous emotions in investing minds.
"Small cap earnings are still in a recession..., sales have disappointed and guidance remains below consensus," the Bank of America analysts said this week, while "weakening macro calls into question whether profits can stage the recovery investors had been expecting this year", so that the outlook for the segment looks "tough". The former American president Donald Trump described the situation more harshly in his charismatic manner by saying that a super-sized rate cut was a sign "the economy would be very bad, or they're playing politics, one or the other."
When the Fed's Powell is stating the economy is "in a good place" and the decision "is designed to keep it there", downplaying any concerns about a recession and stressing a solid yet somewhat cooling labour market, there is quite a reasonable question, on what grounds do they start the cycle of monetary easing with an untypical big rate cut. One version is that they know something rather sad that is still hidden from prying eyes, and the other idea or answer could be within the words by Kamala Harris, Trump's Democratic rival in this election campaign, when she called the Fed's rate cuts as "welcome news for Americans who have borne the brunt of high prices". If nobody can lower prices in the stores everywhere, then the Fed may reduce the borrowing costs to settle in the hope in trusting hearts. Well, the crowd of gullible people who are eager to invest more cheap money into assets is another effective tool for achieving our next target at 44,500 as minimal for the Dow Jones index, if we rely on measured distance that the market usually covers when expanding its price ranges on daily charts.
Dow Jones Industrial Average Index
The index has some specific features:
- Although its name includes the “Industrial” it is not only comprised of industrial companies. Apple Inc., American Express, Boeing, Caterpillar, Chevron, Coca Cola Company, Johnson & Johnson, McDonald's Corporation, Microsoft Corp, Nike, Procter & Gamble, Visa Inc, and Walt Disney are on the index list;
- Each company has a significant share in the index. So, any news about a particular company may have a significant impact on the DJIA performance. Investors should watch for earning statements, major new products announcements, management issues, etc.;
- The index does not represent the U.S. economy as much as the S&P 500 index but, overall, it provides an understanding of economic developments in the United States. Thus, incoming macroeconomic data, including GDP, retail sales, employment, housing market data, and business and consumer activity indicators have an effect on the index. This data has a lasting effect on the index performance;
- DJIA is extremely sensitive to the Federal Reserve’s (Fed) monetary actions. Rising interest rates and lower money supply has a negative effect on corporate sales and margins. Hawkish monetary policies push the index down. Dovish monetary policies have the opposite effect and pushes the index up. Thus, the Fed’s decisions, official statements, and rhetoric should be monitored;
- The impact of inflation figures largely depends on the scale of inflation. If the Consumer Price Index (CPI) or the Personal Consumption Expenditure (PCE) index is significantly above the 2% target, this is negative for the index as it would likely lead the Fed to tighten its monetary policy. Lower inflation rates are positive for business and the index as it stimulates demand;
- DJIA is a risky asset, and is vulnerable to risk appetite and investors’ sentiment. Rising risk appetite, economic perspectives, and positive sentiment all support the index. Political uncertainties, geopolitical tensions, and recession fears place negative pressure on the index. The appetite for risk can be tracked by looking at the CBOE Volatility Index (VIX) that has negative correlation with the index, and also at the S&P 500 index performance, which has a direct correlation with the DJIA;
- The index is a diversified asset and is suitable for conservative and long-term investors. It has lower volatility compared to currencies, energies, and individual stocks;
- The index is linked to the American stock market’s opening hours, but futures and CFD trading on the index continue mostly throughout a 24/5 basis, excluding weekends. So, the index may open with a gap if something very important has happened over a weekend.
| Ticker | US30 |
| Contract value | 10 USD x US30 Index |
| Maximum leverage | 1:100 |
| Date | Short Swap (%) | Long Swap (%) | No data |
|---|
| Minimum transaction volume | 0.01 lot |
| Maximum transaction volume | 100 lots |
| Hedging margin | 50% |
| USD Exposure | Max Leverage Applied | Floating Margin |
|---|
