US equity futures were firmer during European hours on Monday, with Dow Jones futures up 0.18% above 53,280, S&P 500 futures rising 0.46% near 7,560, and Nasdaq 100 futures adding 1.03% to around 29,860. Markets were set to take direction from the US ISM Services PMI later in the session, while attention also turned to Wednesday’s release of the Fed’s June policy meeting minutes for further clarity on the interest-rate outlook.
Rate expectations eased after softer US labour data. CME FedWatch showed markets pricing a 45.0% chance of a 25-basis-point Fed hike in September, versus 48.3% a week earlier, while rate rises by year-end were priced at about 76%. June nonfarm payrolls increased by 57,000 against a 110,000 forecast, even as the unemployment rate edged down to 4.2% from 4.3%. Oil also moved lower on recovering flows through the Strait of Hormuz and prospects of higher OPEC+ supply, while last week’s rally saw the Dow Jones climb nearly 2% towards 53,000, with the S&P 500 up 1.8% and the Nasdaq 100 up 2.1%, led by healthcare, financials and industrials.
Market Reaction To Weak Labor Data And Fed Policy Expectations
We are seeing US stock futures push higher, with the Nasdaq 100 showing particular strength as it approaches the 29,860 level. This positive momentum is being driven by last month’s weak Nonfarm Payrolls report, which showed hiring slowed dramatically to just 57,000 jobs. This has caused us to rethink the likelihood of an imminent interest rate hike from the Federal Reserve.
The probability of a rate hike in September has now fallen to 45%, according to the CME FedWatch tool. This view is supported by other recent data, as the latest Job Openings and Labor Turnover Survey (JOLTS) showed job openings falling to a two-year low of 8.2 million. This trend, combined with core inflation recently dipping to 3.1% year-over-year, gives the Fed more room to pause.
Trading Strategies And Broader Market Themes
While the immediate threat of a rate hike seems to be fading, we expect increased market volatility around Wednesday’s release of the Fed’s June meeting minutes. We should consider buying near-term call options on the VIX index as a cost-effective way to hedge against any unexpectedly hawkish language. The market is still pricing in a 76% chance of a rate hike by the end of the year, so uncertainty remains.
The current rally is notably broad, with healthcare, financials, and industrials hitting new highs even as semiconductor stocks pulled back. This rotation indicates healthy market internals and reduces reliance on a handful of tech giants. We believe traders should look at call options on sector ETFs like the Financial Select Sector SPDR Fund (XLF) to gain exposure to this trend.
Historically, periods where the Fed signals a pause due to a cooling economy, without an outright recession, have been bullish for stocks. The “Powell Pivot” of 2019 is a classic example where a shift away from hawkish policy led to a significant market advance. We believe a similar setup is forming, creating opportunities in index futures and options.
