Dow Jones & Nasdaq 100 Slip as JGB Yields Rise, Fed Divides

US stock futures were down in early trading on Wednesday, December 31, 2025, amid year-end profit-taking. Rising 10-year Japanese Government Bond (JGB) yields and uncertainty about the Fed’s policy outlook exposed US equity futures to the risk of three consecutive days of losses this week.

10-year JGB yields climbed to 2.079% after closing the previous day at 2.072%, hovering close to last week’s 2.1%, the highest level since 1999. Traders also reacted to the overnight FOMC Meeting Minutes, which revealed a starkly divided Fed on the outlook for interest rates.

Meanwhile, Chinese economic data impressed as the all-important manufacturing sector returned to expansion.

Despite this week’s pullback, expectations of further Fed rate cuts are likely to outweigh concerns about the BoJ’s rate path, supporting a bullish medium-term price outlook.

Below, I’ll outline the key market drivers, the medium-term outlook, and the key technical levels traders should watch.

China’s Manufacturing Sector Expands

Chinese economic indicators fueled hopes that Beijing would achieve its 5% GDP growth target for 2025. The RatingDog China General Manufacturing PMI rose from 49.9 in November to 50.1 in December, climbing above the 50 neutral level for the first time in nine months. The December survey revealed some key trends, including:

• Increasing domestic demand.
• Falling external demand.
• Weakening labor market conditions.
• Rising cost pressures.
• Squeezing margins.

Staffing levels fell for the second month due to cost concerns, despite the manufacturing sector returning to expansion. Average input prices increased for the sixth consecutive month, while manufacturers lowered domestic prices, further squeezing margins.

A deteriorating labor market and lower prices for domestic goods underscored the need for effective policy measures from Beijing to bolster the economy.

US Labor Market in Focus

US futures trended lower during the Asian morning session on Wednesday, December 31. The Nasdaq 100 E-mini and the S&P 500 E-mini declined 47 points and 8 points, respectively, while the Dow Jones E-mini slipped by 24 points.

Later on Wednesday, US jobless claims will influence risk appetite. Economists forecast jobless claims to increase from 214k (week ending December 20) to 220k (week ending December 27). A higher jobless claims reading would likely raise bets on a March Fed rate cut and boost demand for risk assets.

A more dovish Fed rate path would counter concerns about a hawkish BoJ policy stance, supporting a constructive bias for US stock futures.

Additionally, traders should closely monitor FOMC members’ speeches given the overnight FOMC Meeting Minutes and division over inflation and the labor market. Views on the timing of rate cuts are likely to influence demand for risk assets. Calls for lower rates would support the bullish short- to medium-term price outlook.

According to the CME FedWatch Tool, the chances of a March Fed rate cut rose from 52.6% on December 29 to 53.1% on December 30.

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

Despite this week’s pullback, the Dow Jones E-mini, the Nasdaq 100 E-mini, and the S&P 500 E-mini remained above their 50-day and 200-day EMAs. The EMAs indicated a bullish short- to medium-term bias, aligning with the positive outlook.

Near-term trends remain hinged on incoming US data, Fed commentary, and BoJ rhetoric. Key levels to monitor include:

Dow Jones

• Resistance: The December 26 record high of 49,086, and then 49,500.
• Support: 48,500 followed by the 50-day EMA (47,725).

Nasdaq 100

• Resistance: 26,000 followed by the October 30 record high of 26,399.
• Support: the 50-day EMA (25,323) and then 24,500.

S&P 500

• Resistance: the December 26 record high of 6,988, and then 7,000.
• Support: the 50-day EMA (6,822) and then 6,500.

Bullish Medium-Term Outlook: Jobs Data and Fed Chatter Key

In my opinion, the short-term price outlook remains cautiously bullish, considering expectations of a Fed rate cut, alongside technicals. Furthermore, markets anticipate the incoming Fed Chair to favor low interest rates, reinforcing the constructive medium-term bias.

However, several events would likely unravel the bullish medium-term outlook, including:

• The Bank of Japan announces a neutral interest rate of between 1.5 and 2.5%, signaling narrower US-Japan rate differentials.
• Strong US data and hawkish Fed rhetoric lower bets on a Fed rate cut.

Conclusion: Outlook Bullish

In summary, a robust US economy, expectations of Fed rate cuts, AI-related developments, and a less hawkish BoJ rate path support a cautiously bullish short-term and bullish medium-term outlook for US stock futures.

Nevertheless, traders should closely monitor 10-year JGB yield, USD/JPY, and Nikkei 225 trends, following December’s BoJ Summary of Opinions.

Yen intervention threats and hawkish BoJ rhetoric would likely drive JGB yields higher. Rising yields would send USD/JPY lower, potentially weighing on risk appetite.

Key levels to watch include a USD/JPY drop below 150 and 10-year JGB yields advancing to the December 22 high of 2.1%. These levels would likely send the Nikkei 225 lower, weighing on demand for US risk assets.

Despite looming BoJ hikes, US stock futures are likely to target new highs, with the Fed’s policy outlook and earnings key drivers.

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