- US stock markets will return to action on Tuesday after a long weekend.
- European equity indexes trade mixed to start the week.
- Federal Reserve will release the minutes of the January policy meeting on Wednesday.
Stock markets in the US will remain closed in observance of the Presidents’ Day holiday on Monday. Major equity indexes in Europe trade mixed. As of writing, Germany’s DAX 30 is down 0.35% at 17,056.95, Euro Stoxx 50 falls 0.27% to 4,752.83, Italy’s FTSE trades flat, while Spain’s IBEX 35 and the UK’s FTSE 100 indexes gain 0.2% and 0.1%, respectively.
Stock market news
- Hong Kong Hang Seng Index declined 1.13% to close at 16,155.61 on Monday. Shanghai Composite rose 1.56% to 2,910.54. Following a bearish start to the week, Japan’s Nikkei 225 staged a late recovery to end the day flat at 38,470.38.
- Dow Jones (DJIA) closed the previous week virtually unchanged at 38,628. S&P 500 lost 0.42% to close at 5,005.56 and Nasdaq fell 0.82% to 15,775.65.
- The Communication Services sector ended Friday in the red by 1.56% as the worst-performing major S&P sector, followed by the Real Estate Sector that shed 0.99% by the closing bell. On the flip side, Friday’s largest-gaining sector was the S&P’s Materials Sector, climbing 0.51% on the day.
- Applied Materials Inc. (AMAT) was the top S&P 500 gainer on Friday, rising 6.3% to end the day at $199.57. Digital Realty Trust Inc. (DLR) lost 8.3%, wrapping up Friday’s trading at $136.22 as the biggest decliner.
- The Federal Reserve will release the minutes of the January policy meeting on Wednesday. On Thursday, preliminary February Manufacturing and Services PMI reports for Germany, the Euro area, the UK and the US will be scrutinized by market participants.
- The Bureau of Labor Statistics reported on Friday that the Producer Price Index (PPI) for final demand in the US rose 0.9% on a yearly basis in January. This reading followed the 1% increase recorded in December but came in above the market expectation of 0.6%. The annual Core PPI rose 2% in the same period, compared to December’s increase of 1.8%. On a monthly basis, the Core PPI was up 0.5% following the 0.1% decline recorded in the previous month.
- The University of Michigan’s Consumer Sentiment Index improved modestly to 79.6 in February’s flash estimate from 79.0 in January. The Current Conditions Index edged lower to 81.5 from 81.9 and the Consumer Expectations Index rose to 78.4 from 77.1.
- Inflation in the US, as measured by the change in the Consumer Price Index (CPI), softened to 3.1% on a yearly basis in January from 3.4% in December, the BLS reported on Tuesday. This reading came in above the market expectation of 2.9%.
- The Core CPI, which excludes volatile food and energy prices, rose 3.9% in the same period and matched December’s increase, surpassing analysts’ estimate of 3.7%.
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.
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