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What's the Outlook for Dow Futures Ahead of the Fed?

Jan 25, 2022

By:James Blakeway

As the first month of 2022 comes to a close, U.S. equities are hurting, with all four major indices showing losses for the start of the year. The Dow Jones futures (/YM) are the most resilient down less than 6% YTD.

Graph of /YM, /ES, /RTY, /NG From January 5th to January 25th

Dow Futures January Performance

Compared to the other indices, the Dow Jones futures typically see lower daily volume. However, volatility over the last few days has skyrocketed volume for the Dow futures. Monday’s total volume of 460994 contracts (for the front month, March) was 51,000 higher than any single day in 2021. For the month of January, Dow futures have now seen more total contracts traded than any given month in 2021, except for March of last year. Keep in mind, that’s with 4 trading days left in the month.

Graph of Dow Jones Futures Total Monthly Volume

How Will Dow Futures Respond to the Fed?

With the Federal Open Market Committee (FOMC) meeting this week, we can expect further volatility as the market digests news about the impending action of the Federal Reserve in 2022. Those trading Dow Futures should keep in mind big earnings that are likely to impact the index in the coming days.

FOMC Impact on Dow Stocks

The first and third largest Dow components, UnitedHealth (UNH) and Goldman Sachs (GS) already reported earnings last week. Microsoft (MSFT) reports today and is the fourth largest component. Home Depot (HD) the second largest holding in the Dow, doesn’t report until February 22nd, sparing traders from any fallout from HD’s numbers for the next month.

Traders should keep in mind that MSFT and Apple (AAPL) are smaller components for the Dow, due to the archaic index price-weighting. But these two stocks are the two largest components of the S&P 500 and Nasdaq-100 and will have huge bearing on how those indices move in the coming weeks.

While companies like salesforce (CRM) are smaller components for the Dow, they will garner widespread attention around earnings due to the systemic selloff in all tech and cyber security names in recent months.

Short-Term Outlook for the Dow Jones 

While the Dow does have lower volume in its futures and ETF products, relative to the other indices, the index will likely continue to see volatility in the coming weeks. Whether it’s Ukraine tension, Fed decisions, or earnings beats and misses the index will move. Size positions according to risk, and stay vigilant.

Chart of Top 15 Dow Jones Holdings

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