Dow Jones futures rose by 0.20% to 46,900, along with gains in S&P 500 and Nasdaq 100 futures. This increase happened during European hours, just before the US market opened. The surge is mainly due to tech stocks benefiting from artificial intelligence (AI) trends, despite worries about a possible US government shutdown affecting market behavior. Overnight, US index futures picked up after a strong day on Wall Street. Traders are cautious because a government shutdown might delay important US economic reports. On Thursday, the Dow Jones increased by 0.06%, the S&P 500 rose by 0.17%, and the Nasdaq Composite climbed by 0.39%. Within the tech sector, Nvidia and AMD excelled, bolstered by significant investments from OpenAI.

Federal Reserve Rate Expectations

US stock markets received a boost from weaker labor market data, raising hopes for Federal Reserve rate cuts. The CME FedWatch Tool shows a 97% chance of a rate cut in October and a 91% chance in December. The Dow Jones, which includes 30 major US companies, affects the market through earnings and overall economic factors, including interest rates that influence credit costs. As of October 3, 2025, the strong momentum in AI stocks is a key trend to watch. Tech leaders like Nvidia, AMD, and Intel are pushing indices to new highs, making bullish strategies on the Nasdaq 100 appealing. Throughout 2024 and 2025, any dip in tech has been met with enthusiastic buying. This optimism about AI is significantly supported by expectations around the Federal Reserve’s policies. With weaker labor market data recently, the market is pricing in a 97% chance of an interest rate cut this month. Reflecting on the markets’ reactions to the Fed’s supportive stance in late 2023, we notice that a low-rate environment benefits growth-focused tech stocks. However, we face uncertainty from the ongoing US government shutdown. Delays in key data, particularly the September Nonfarm Payrolls report, mean we have less information to guide trading. The past shutdown from 2018 to 2019 showed how delayed data can cause short-term volatility, making the market prone to sudden, unexpected changes.

Market Strategies and Considerations

For derivative traders, this environment indicates high implied volatility, which can be advantageous. Strategies that profit from significant price movements, like long straddles or strangles on the SPX or NDX, may be effective once key data is released. Selling out-of-the-money puts on strong AI stocks like Nvidia, which recently surpassed a $4 trillion market cap, could also be a way to earn premiums while expressing a bullish outlook. The noticeable contrast between soaring tech stocks and the wider market suggests focusing on the Nasdaq 100. Buying call options or call spreads on the index or its leading stocks is a direct way to take advantage of the AI trend. The Nasdaq 100 has already risen over 35% this year, with no signs of slowing down. Despite the positive outlook, it’s essential to exercise caution, as the market could react negatively to surprises. The US ISM Services PMI report set to come out today could create some intra-day volatility. Therefore, using derivatives to limit risk—like buying call spreads instead of outright calls or purchasing protective puts on existing long positions—would be a wise strategy. Create your live VT Markets account and start trading now.

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