The beginning of June bestowed outstanding returns on the Dow Jones as the related fundSPDR Dow Jones Industrial Average ETF (DIA - Free Report) added 3.6%. On Friday, the Dow closed 263.28 points higher at 25,983.94, logging its best week since November, per CNBC. Let’s take a look at what caused the rally last week.
Chances of Fed Rate Cuts
Talks are rife that the Fed may resort to rate cuts, should the need be. The central bank is keeping a close eye on the developments in the trade front. The downbeat jobs data for the month of May has cemented the talks.
At the current level, according to CME FedWatch tool, there is a 48.2% chance of a 50-bp rate cut in the Sep 18 meeting, followed by a 36.3% probability of a 25-bp rate cut, 8.6% likelihood of a 75-bp rate cut and only 6.9% probability of a no-rate-cut scenario (read: ETF Strategies to Win If Powell Enacts Rate Cuts).
Furthermore, it has been noticed that the Dow Jones shares a deep relationship with oil price movement. Though the energy sector rally generally spread optimism in the broader market as a whole, in most cases, on a particular day of oil surge, the spurt in the Dow Jones is steeper than that of the S&P 500 or vice versa. Oil prices gained past week. WTI fund United States Oil (USO - Free Report) added about 1.5%, while United States Brent Oil (BNO - Free Report) has advanced around 3.7%.
How Long Will the Dow Rebound Last?
The rally is expected to stay for a while. President Trump has postponed his plans of a 5% tariff on Mexican goods “indefinitely” on late Friday. The announcement of a rollback in tariffs came after Mexico agreed to strengthen immigration enforcement.
Global stocks should be beneficiaries of this pact. Since trade and industrial activity are highly interlinked, Dow Jones-related ETFs should gain if trade tensions subside considerably. Moreover, oil prices are likely to stay steady in the days ahead as Saudi Arabia said that OPEC and Russia are likely to keep curbing supplies.
ETFs in Focus
So, investors intending on a momentum play can bet on DIA, Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report) and iShares Dow Jones US ETF (IYY - Free Report) . Investors can also settle on leveraged Dow ETF plays as long as the trend favors them. Here, ProShares Ultra Dow30 (DDM - Free Report) and ProShares UltraPro Dow30 (UDOW - Free Report) are a couple of choices.
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