Dow Jones futures are up 0.37%, nearing 46,550 during European trading hours before the US market opens. S&P 500 futures have risen 0.45% to about 6,730, while Nasdaq 100 futures climbed 0.56% to over 25,100. US index futures are gaining as US-China trade tensions ease, especially regarding soybean trade. President Trump is optimistic about reaching a deal with China, hinting at possible tariff reductions under specific conditions.

Impact of Last Week’s Market Activity

Last week saw the Dow Jones drop by 0.65%, the S&P 500 by 0.63%, and the Nasdaq 100 by 0.36%. These declines were driven by trade concerns, issues with regional banks, and profit-taking in AI stocks. Investors are now focusing on upcoming earnings from companies such as Netflix and Tesla. Additionally, US stocks are getting a boost from potential interest rate cuts by the Federal Reserve. According to the CME FedWatch Tool, there’s almost a 100% chance of a rate cut in October and a 96% chance of another cut in December. The Dow Jones Industrial Average (DJIA) is made up of 30 major US stocks, with its value calculated by adding their prices. Factors that impact the DJIA include company earnings, economic data, and interest rates. Dow Theory uses trend analysis to inform stock market movements. Today, there is cautious optimism in the market, similar to previous times when easing US-China trade tensions boosted futures. However, the optimism of the past, which focused on agricultural purchases, now feels far away. Recent reports from the Commerce Department indicate a widening trade deficit with China, raising worries about ongoing economic tensions.

Changes in Federal Reserve Policy

The most significant change for traders is the Federal Reserve’s current position, which has flipped from a focus on rate cuts to contemplating rate hikes. The September 2025 Consumer Price Index (CPI) report shows inflation stubbornly stuck at 3.8%, increasing the likelihood of further rate hikes. As a result, derivative markets have largely eliminated expectations for a rate cut this year, a sharp contrast to the previous certainty of cuts. Given this environment, traders should think about strategies that can thrive on volatility or provide downside protection. Buying far out-of-the-money calls on indices like the S&P 500 carries risks, as economic challenges could limit any potential rally. There has been a significant rise in demand for protective puts, with VIX futures steadily increasing over the past two weeks. The profit-taking in AI stocks seen in previous years has led to a broader reassessment of the sector’s value. The stress in regional banks, which became a primary issue in 2023, has shifted to concerns about thin margins in a prolonged high-interest rate setting. Consequently, options on financial and tech sector ETFs are witnessing increased activity as traders wager on third-quarter earnings. Create your live VT Markets account and start trading now.

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