Dow Jones & Nasdaq 100 Futures Hold Firm as Fed and Earnings Collide

US stock futures had a mixed Asian market session on Wednesday, October 29, as traders brace for a potentially volatile US session. 10-year US Treasury yields hovered below 4% after two consecutive days of decline on expectations of the Fed cutting rates later today and in December. A dovish pivot could ignite a new risk-on rally.

Notably, the Nikkei broke new ground in early trading, rising above 51,000 for the first time. Nvidia (NVDA) announced AI chip bookings worth $500 billion and an agreement to build supercomputers for the US Department of Energy, driving demand for tech stocks. The announcement came ahead of the upcoming MAG7s’ highly anticipated earnings reports.

Rate Cut and QT Bets Spotlight the Fed

Although US stock futures had a mixed start to the Wednesday session, markets are betting on a 25-basis-point Fed rate cut later in the day.

Given that markets have priced in the rate cut, Fed Chair Powell’s press conference and announcements regarding Quantitative Tightening (QT) will be focal points.

Fed Chair Powell’s backing of an additional December rate cut, aimed at supporting a weakening labor market, and suggestions of inflation peaking, could send US stock futures to new highs. Furthermore, US stock futures could soar if the Fed signals an end to balance-sheet tightening.

10-year US Treasury yields dropped below 4% on October 14. Markets reacted to Fed Chair Powell hinting at an end to QT. A 25-basis-point Fed rate cut and an end to QT could boost liquidity, lifting demand for US stock futures.

According to the CME FedWatch Tool, the chances of 25-basis-point rate cuts in October and December stand at 99.9% and 91.0%, respectively. Notably, the chances of a December rate cut have fallen in recent sessions despite the US government shutdown extending to 28 days.

Bank of America Lays Out Fed Policy Outlook

A reopening of the government could expedite the release of crucial jobs reports, potentially shifting the Fed’s policy stance. CN Wire shared details from a Bank of America research report on the potential scenarios, referencing the September dot plot, which stated:

“A slim majority of the committee felt these risks warranted at least 75bp of cuts this year. Without additional data, we think this group, which most likely includes Chair Powell, will want to follow through on the Sep dot plot. Some doves might even argue that a prolonged government shutdown amplifies downside risks to activity.”

However, the report signaled potential policy uncertainty if the government reopens, stating:

“If the shutdown ends soon and the BLS simultaneously runs the Oct and Nov surveys, we might even get all three jobs reports (Sep through Nov) that would be due before the Dec FOMC meeting. In this scenario, our rule of thumb is that a Nov u-rate<=4.3% would keep the Fed on hold in Dec, while a u-rate >=4.5% (consistent with the SEP) would precipitate a cut. If we’re at 4.4%, the Dec decision will be a close call, and will hinge on the broader data flow (including inflation).”

US Stock Futures: Fed Chair Powell and Earnings in Focus

US stock futures eye five-day winning streaks on Wednesday despite a mixed start to the day. The Dow Jones E-mini fell 49 points, while the Nasdaq 100 E-mini and S&P 500 E-mini advanced 80 points and 12 points, respectively.

The Fed interest rate decision, QT announcement, and Fed Chair Powell’s press conference will be key market drivers. However, corporate earnings will also influence market sentiment.

Alphabet (GOOGL), Meta Platforms (META), and Microsoft (MSFT) will release earnings later today. Earnings will clash with the Fed’s interest rate decision and Powell’s press conference.

Markets are optimistic, leaving the Nasdaq 100 and the S&P 500 exposed to disappointing earnings.

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

Beyond policy, traders are also watching critical technical thresholds that could influence near-term momentum. Despite the mixed morning, US stock futures traded well above key technical levels after hitting record highs the previous day. The EMAs signal bullish momentum.

The near-term trends will hinge on the Fed, corporate earnings, the US Senate, and trade talks on Thursday, October 30. Key levels traders should monitor include:

Dow Jones

• Resistance: the October 28 record high of 48,118, then 48,250.
• Support: 47,500, 47,000, the 50-day EMA (46,294).

Nasdaq 100

• Resistance: October 29 record high of 26,253, then 26,500.
• Support: 26,000, 25,750, 25,500, 25,000, the 50-day EMA (24,663).

S&P 500

• Resistance: October 28 record high of 6,945, then 7,000.
• Support: 6,750, the 50-day EMA (6,660), and 6,500.

Market Outlook: Earnings and the Fed Take Center Stage

Traders should brace for a crucial session, with corporate earnings and the Fed set to influence market trends.

Corporate earnings will affect market sentiment. However, a dovish Fed rate cut, including an end to balance-sheet tightening, could boost demand for US stock futures. The Nasdaq 100 could break through 27,000, with the S&P 500 eyeing 7,000.

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