Dow Jones & Nasdaq 100: US Futures Climb as Asian Markets Price Fed Cut

US stock futures got a pre-Thanksgiving boost early in the Asian session on Wednesday, November 26. Rising bets on a December Fed rate cut lifted sentiment during the morning session, fueling demand for risk assets.

Shifting sentiment toward the Fed rate path has been pivotal for US equity futures. The latest rate cut bet revival has set the stage for a four-day winning streak and a potential reversal of November’s losses.

According to the CME FedWatch Tool, the probability of a December Fed rate cut has risen from 50.1% on November 18 to 84.3% on November 25. The chances of a December cut had stood at 91.7% one month earlier, on October 24.

Fed Cut Expectations Fuel Renewed Strength in US Stock Futures

Mohamed El-Erian, Professor of Practice at Wharton and Allianz Advisor, shared a chart showing the rapidly shifting Fed rate path, stating:

“The whiplash in December Fed rate expectations is stunning. As this Bloomberg chart shows, the probability of a December 25bp cut went from >90% to<30% and is now heading back up strongly—all in one month. This kind of wild volatility is the opposite of the predictability and stability the Fed usually strives for, especially as the central bank at the core of the global payments system.”

El-Erian attributed the seismic swings to the after-effects of the US government shutdown, adding that:

“It’s the result of shutdown-disrupted data, a dual-mandate squeeze, […], and the lack of a clear strategic framework from the world’s most powerful central bank, which has been overly data-dependent for a protracted period.”

Notably, the cancellation of the October jobs and CPI reports leaves the Fed flying blind going into December’s FOMC monetary policy meeting. The absence of key reports exposes US index futures to second-tier data and heightened volatility.

Nevertheless, economists are hoping for an end-of-year rally despite the lack of key US data. The Kobeissi Letter commented on the US equity market rebound, stating:

“S&P 500: 2% away from all-time highs. Fear & Greed Index: 16, Extreme Fear. Sentiment is perfectly positioned for an end of year Santa rally.”

US Stock Futures: Jobless Claims and Fed Speakers in Focus

Futures posted solid gains during the Asian session. The Dow Jones E-mini rose 87 points, the Nasdaq 100 E-mini advanced 73 points, while the S&P 500 E-mini climbed 15 points.

Later on Wednesday, US labor market data and Fed speakers are likely to influence market bets on a December rate cut. A cooling labor market would support further Fed monetary policy easing next month after September’s producer prices signaled a softer inflation outlook.

Economists forecast initial jobless claims to rise from 220k (week ending November 15) to 227k (week ending November 22).  Rising claims would align with the latest ADP’s 4-week average employment data, which showed employment fell for a third consecutive week.  Crucially, continued support for a Fed rate cut would likely boost demand for risk assets such as US stock futures.

Beyond the data, FOMC members’ speeches also require consideration as calls for further rate cuts gain momentum.

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

Following the overnight rally and morning gains, the Dow Jones E-mini, the Nasdaq 100 E-mini, and the S&P 500 E-mini traded above their 50-day and 200-day EMAs, indicating bullish momentum.

Near-term trends will hinge on incoming labor market data and Fed speeches. Key levels to monitor include:

Dow Jones

• Resistance: 47,500, 48,000, and the November 12 record high of 48,528.
• Support: 47,000, the 50-day EMA (46,705), 46,000, and then the November 21 low of 45,779.

Nasdaq 100

• Resistance: 25,500, 26,000, and then the October 30 record high of 26,399.
• Support: the 50-day EMA (24,928), 24,500, and then 24,000.

S&P 500

• Resistance: the October 30 record high of 6,954, and then 7,000.
• Support: the 50-day EMA (6,712), 6,500, and then 6,250.

Market Outlook: US Data and the Fed in the Spotlight

Traders should brace for a pivotal US session as the US markets close on Thursday, November 27, for the Thanksgiving Holiday.

US economic data and Fed speeches will set the tone for the final full trading session of the week. Continued support for a December Fed rate cut sets the stage for a bullish Wednesday session.

Crucially, this week’s call between President Trump and Chinese President Xi should remove any jitters over a potential breach of the one-year trade truce, another tailwind for US equity futures.

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