Insights 
VT 
Dow Jones futures rise 0.37% to approach 46,550 during European hours, ahead of the US market opening. S&P 500 futures climb 0.45% to around 6,730, and Nasdaq 100 futures increase 0.56% to surpass 25,100.
US index futures advance amid easing US-China trade tensions, with discussions about soybean trade. President Trump expressed confidence in reaching an agreement with China, suggesting a reduction in tariffs if certain conditions are met.
Impact of Previous Week’s Market Movements
Last week, the Dow Jones fell 0.65%, the S&P 500 dropped 0.63%, and the Nasdaq 100 declined 0.36%. These movements were influenced by trade worries, regional bank issues, and profit-taking in AI stocks, shifting focus to earnings from companies like Netflix and Tesla.
US stocks also gain support from potential US Federal Reserve rate cuts. The CME FedWatch Tool indicates a nearly 100% chance of a Fed rate cut in October and a 96% probability of another cut in December.
The Dow Jones Industrial Average (DJIA) consists of 30 major US stocks, calculated by summing their prices. Factors influencing the DJIA include company earnings, macroeconomic data, and interest rates. Dow Theory uses trend analysis to guide stock market movements.
We are seeing a cautious optimism in the market today, reminiscent of past periods when easing US-China trade tensions boosted futures. However, that optimism from years ago, centered on agricultural purchases, now seems distant. Recent October 2025 reports from the Commerce Department indicate a widening trade deficit with China, renewing concerns over long-term economic friction.
Shift in Federal Reserve Stance
The biggest shift for traders is the Federal Reserve’s stance, which has completely inverted from the rate-cut-heavy environment of the past. The September 2025 Consumer Price Index (CPI) report showed inflation holding stubbornly at 3.8%, making further rate hikes a possibility. Consequently, derivative markets have priced out any chance of a rate cut this year, a stark contrast to the near-certainty of cuts we saw in previous cycles.
This backdrop suggests traders should consider strategies that benefit from volatility or offer downside protection. Buying far out-of-the-money calls on indices like the S&P 500 is risky, as macro headwinds could easily cap any rally. We have observed a significant increase in demand for protective puts, with VIX futures rising steadily over the last two weeks.
The profit-taking in AI-related stocks that we saw in previous years has now matured into a broader reassessment of the sector’s valuations. The regional banking stress, which first became a major story back in 2023, has evolved into a concern over compressed margins in a sustained high-rate environment. Options on financial and tech sector ETFs are therefore seeing elevated activity as traders place bets on third-quarter earnings performance.
