Dow Jones & Nasdaq 100 Rally as Trade News and Fed Rate Cut Bets Boost Sentiment

US-China Trade Talks and Fed Rate Cut Bets Extend Nasdaq 100 Winning Streak

Could another US-China tariff-truce extension be enough for US stock Futures? US stock futures extended their gains from Monday as updates from the US-China trade talks lifted sentiment.

Easing US-China trade tensions and hopes for a 50-basis-point Fed rate cut lifted demand for US stock futures. The Nasdaq 100 could extend its winning streak to 10 sessions, potentially beating November 2023’s nine-day rally. The Nasdaq 100’s longest winning streak of 19 days was back in May 1990.

US-China Trade Talks Ease Escalation Fears

US-China trade talks in Madrid eased fears of a full-blown trade war, lifting sentiment. US Treasury Secretary Scott Bessent described the meetings as ‘respectful, wide-ranging, and in-depth.’

Although there was no finalized trade deal, both sides reportedly agreed on a framework to transfer TikTok to US control. Commenting on next steps, Treasury Secretary Bessent stated:

“We will be holding trade negotiations in about a month.”

Bessent added that it remains to be seen whether a trade deal can be reached before the APEC summit. The US Treasury Secretary and US trade representative Jamieson Greer signaled a likely tariff truce extension before the November deadline. While talks in Madrid focused on TikTok, China’s investigation into the US semiconductor industry did not stall negotiations.

President Trump remarked on the trade talks and TikTok agreement, stating:

“The Big trade meeting in Europe between the United States of America and China has gone very well! It will be included shortly. A deal was also reached on a certain company that young people in our country very much wanted to save. They will be very happy! I will be speaking to President Xi on Friday. The relationship remains a very strong one!!!”

A de-escalation in US-China trade tensions and lower tariffs could ease US stagflation risks. US levies have fueled inflationary pressures, curbing consumer spending. Lower US tariffs on Chinese shipments may dampen US import costs, cool inflation, and potentially boost consumer spending.

Markets React: Futures Rally as the Fed Decision Looms

US stock futures rallied in morning trading on Tuesday, September 16, following overnight record intraday highs for the Nasdaq Composite Index and the S&P 500. The Nasdaq 100 E-mini gained 249 points, the S&P 500 E-mini rose 57 points, while the Dow Jones E-mini climbed 315 points.

President Trump’s attempt to remove Fed Governor Lisa Cook faced a setback. The US Court of Appeals rejected Trump’s bid to fire the Fed governor, easing immediate concerns about Fed independence.

Economists expect a 25 bps cut, though some still speculate about a larger 50 bps move.

Economist Adam Kobeissi underscored the significance of Wednesday’s interest rate decision, stating:

“The Fed is about to add rocket fuel to the fire: Since 1980, 100% of Fed rate cuts with the S&P 500 at record highs have led to more record highs 12 months later. Not to mention, this time around, we are in the midst of the AI Revolution, which is barely in its 2nd inning.”

However, downside risks linger, given elevated inflation. A less hawkish Fed rate path may weigh on risk assets.

Can Retail Sales Derail the Fed from a Dovish Rate Path?

Later Tuesday, traders should brace for US retail sales data, which will provide insights into the US economy. Economists forecast a 0.3% increase month-on-month (MoM) in August after July’s 0.5% increase.

A higher print could ease recession fears, given that private consumption accounts for around 67% of the US GDP. Positive data may lift risk appetite as the Fed is more focused on a cooling labor market vis-à-vis monetary policy.

On the other hand, a lower reading may raise recession jitters, potentially testing risk appetite.

Because the Fed is laser-focused on the labor market, today’s data is unlikely to shift policy unless there is a sharp drop.

Aggressive easing would cut borrowing costs and lift earnings and share prices. Rate-sensitive stocks, including the Magnificent Seven companies, would benefit from a more dovish Fed policy stance. Adam Kobeissi highlighted the potential impact of lower rates on borrowing costs, commenting:

“Magnificent 7 companies alone are investing $100 billion+ per quarter in CapEx.”

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

The morning rallies reaffirmed the short-term bullish bias. However, momentum hinges on the FOMC’s rate decision, projections, and Fed Chair Powell’s press conference. Trade developments will also affect risk sentiment. For traders, here are the key levels that could determine market direction in the coming sessions.

Dow Jones

• Resistance: September 16 record high of 46,270 and then 46,500.
• Support: 46,000, 45,500, and then the 50-day EMA (44,922).

Nasdaq 100

• Resistance: September 16 record high of 24,563 and 25,000.
• Support: 24,500, 24,000, and the 50-day EMA (23,378).

S&P 500

• Resistance: September 16 record high of 6,679, 6,750, and then 7,000.
• Support: 6,500 and the 50-day EMA (6,405).

September Outlook: Trade and Fed in Focus

Traders should closely monitor key events, including today’s consumer spending report. However, Wednesday’s Fed interest rate decision and projections, and US-China trade talks, remain crucial. These events could extend or derail the September rally. Follow our live coverage and consult our economic calendar.