Dow Jones & Nasdaq 100 Diverge as Tech Stocks Get Boost in Asian Session

Fed Rate Cut Bets Boost Risk Assets

US labor market data fuels bets on an October Fed rate cut, boosting demand for rate-sensitive tech stocks.

According to the CME FedWatch Tool, the chances of an October rate cut rose from 96.2% on Tuesday, September 30, to 99% on Wednesday, October 1.

The Hang Seng Index and the Nikkei 225 climbed 1.11% and 0.28%, respectively, in morning trading, as US stock futures posted mixed performances.

Dr. Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, commented on the US ADP employment survey, stating:

“The ADP emp survey fell – it has only a rough correlation to mthly payrolls but adds to a data pointing to a soft jobs mkt.”

The overnight labor market data resonated during the Asian market session, given the US government shutdown. The shutdown means that traders must wait longer for the BLS jobs report, typically released two days after the ADP data.

Notably, traders discounted shutdown risks, pointing to historical post-shutdown rallies. The Kobeissi Letter commented on the S&P 500’s latest bull run and historical trends, stating:

“The S&P 500 officially crosses above 6,700 for the first time in history less than 24 hours after the government shutdown begins. If history repeats itself, the S&P 500 will close at ~7,600 in 12 months from today. The average 12-month return after a shutdown ends is +13%.”

US Government Shutdown Hits Pause on Key US Data

The US government shutdown leads to the suspension of key data releases. This week, jobless claims and the US jobs report will be suspended until government offices reopen.

With the next FOMC interest rate decision due on October 29, labor market and inflation data would be key considerations. While missing data could push the Fed toward a cautious rate cut, some FOMC members may argue for delaying cuts until inflation trends are clearer.

The Kobeissi Letter noted that, on average, the Fed takes a more dovish policy stance during a US government shutdown. For context, the Fed will hold its October monetary policy meeting, irrespective of developments on Capitol Hill.

How Are US Stock Futures Reacting to Key Data and the Shutdown?

US stock futures were mixed on Thursday, October 2. The Nasdaq 100 E-mini gained 36 points, and the S&P 500 E-mini advanced 3 points on expectations of an October Fed rate cut. Meanwhile, the Dow Jones E-mini dropped 12 points.

Later Thursday, developments on Capitol Hill could influence risk sentiment. Lawmakers would need to pass a stopgap bill to fund government services through October and November. An extended shutdown could lead to severe layoffs among federal workers. Vice President Vance reportedly warned of significant layoffs if the shutdown extends beyond a few days.

Key Technical Levels for Dow Jones, Nasdaq 100, and S&P 500

Despite the mixed morning, US stock futures traded above the 50-day and 200-day Exponential Moving Averages (EMAs), reaffirming a short-term bullish bias.

However, the near-term outlook depends on key US data, the government shutdown, and Fed rhetoric. Key levels traders are monitoring include:

Dow Jones

• Resistance: The September 23 record high of 47,055.
• Support: 46,500, 46,000, and then the 50-day EMA (45,552).

Nasdaq 100

• Resistance: October 2 record high of 25,077 and 25,250.
• Support: 24,500, 24,000, and the 50-day EMA (23,930).

S&P 500

• Resistance: October 2 record high of 6,772, followed by 7,000.
• Support: 6,600 and then the 50-day EMA (6,524).

US Stock Futures Enter a Pivotal Juncture: What Should Traders Look Out For

US stock futures entered the fourth quarter at or near record highs. Will the Fed boost sentiment or play the inflation card?

Traders should monitor updates from Capitol Hill, US trade headlines, and FOMC members’ speeches. Rising support for the funding bill and dovish Fed rhetoric could send US stock futures to new highs. However, FOMC members’ calls to delay rate cuts to assess consumer price trends could weigh on risk assets.

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