Dow Jones & Nasdaq 100 Slide on AI, Fed, and Data Jitters

US stock futures extended their November losses on Wednesday, November 5, as Asian equity markets stumbled on AI bubble jitters. Traders reacted after CEOs of US banking giants Goldman Sachs (GS) and Morgan Stanley (MS) warned of a market correction, challenging stock valuations.

Meanwhile, concerns about the US government shutdown, inflation, and the US economic outlook added to the market gloom. Fading bets on a December Fed rate cut have clashed with the US government shutdown.

The shutdown entered its 35th day on Tuesday, November 4, tying the 2018-2019 record shutdown. However, economists expect the 2025 Senate impasse to have a more significant impact on the US economy.

JPMorgan economist Michael Feroli commented on the economic impact of the shutdown, stating:

“Each week, a shutdown subtracts about 0.1% from annualized GDP growth via reduced government activity. There could be a sentiment channel as well if the duration of the shutdown enters uncharted territory.”

China Services PMI Challenges Beijing’s 5% GDP Growth Target

While speculation about US stagflation intensified, the Chinese economy also faced scrutiny early in the Wednesday session. The RatingDog China General Services PMI fell from 52.9 in September to 52.6 in October, sending the Composite PMI down to 51.8 (September: 52.5).

Weakening external demand intensified competition, forcing firms to cut output prices even as input prices rose. Margin squeezes led firms to cut staffing levels, potentially impacting domestic consumption.

The threat of US stagflation and a slowing Chinese economy reinforced investor concerns about high valuations. The Hang Seng Index dropped 1.25% to 25,628, joining US stock futures in the red. In contrast, demand for safe-haven assets sent gold up 0.40% to $3,948.

US Stock Futures: US Services PMI and Fed in Focus

US stock futures faced increased selling pressure in Asia’s morning trading session. The Nasdaq 100 E-mini slid 257 points, the Dow Jones E-mini declined 92 points, while the S&P 500 E-mini dropped 43 points.

Later on Wednesday, US economic data, Fed speakers, and Capitol Hill will influence risk appetite.

Economists forecast the ADP report will show a 25k increase in employment in October after September’s 32k drop. A larger-than-expected increase in employment could ease stagflation fears, boosting demand for US stock futures. However, another monthly drop could drive stagflation jitters, sending US stock futures lower.

While labor market data will influence sentiment, US services sector data could provide more meaningful insights into the US economy, as the sector accounts for around 80% of GDP. Economists expect the ISM Services PMI to increase from 50.0 in September to 50.8 in October.

A higher PMI reading would likely temper fears of a US recession. However, the employment and price sub-components will require consideration. Rising prices and falling employment would raise risks of stagflation, weighing on US stock futures. Meanwhile, falling prices and lower employment could ease stagflation risk but raise bets on a December Fed rate cut, boosting demand for US stock futures.

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

Despite November’s losses, US stock futures remained above key technical levels, indicating a bullish bias.

Near-term trends will hinge on key US data, Fed rhetoric, and developments on Capitol Hill. Key levels traders should monitor include:

Dow Jones

• Resistance: 47,500, 48,000, and the October 28 record high of 48,214.
• Support: 47,000 and the 50-day EMA (46,498).

Nasdaq 100

• Resistance: 25,500, 26,000, then October 30 record high of 26,399.
• Support: 25,000, then 50-day EMA (24,863).

S&P 500

• Resistance: October 30 record high of 6,954, then 7,000.
• Support: 6,750, the 50-day EMA (6,691), and 6,500.

Market Outlook: US Data and Capitol Hill

Traders brace for a choppy session, with developments on Capitol Hill and US data in focus.

Crucially, the US government shutdown could extend to its 36th day, the longest in history. Given estimates suggesting the Senate impasse could significantly impact the US economy, stock futures could see selling pressure intensify if US data signals a loss of momentum.

Traders should closely monitor Fed speeches as US stock futures risk reversing their third-quarter gains. A shift in the Fed’s policy stance, supportive of a December rate cut, could ease market tensions.

Follow our live coverage and consult the economic calendar for real-time market updates.