Dow Jones futures remain stable near 47,100 during European trading hours, as traders await US market opening. S&P 500 futures remain flat around 6,770, while Nasdaq 100 futures drop 0.15% to about 25,250.

In pre-market trading, Netflix drops over 6.5% after Q3 earnings miss, and Mattel slips over 5.5% on disappointing results. In contrast, Intuitive Surgical sees a surge of more than 15% due to a strong quarterly performance.

Us Index Futures Mixed Movements

US index futures show mixed movements as anticipation builds for Tesla’s earnings report and upcoming US inflation data. The ongoing US government shutdown creates delays in key economic data releases, adding uncertainty to the markets.

On Tuesday, the Dow Jones climbed 0.47% to a record high, propelled by strong earnings from major components. The S&P 500 ended flat, while the Nasdaq 100 dropped 0.16% as momentum in tech stocks waned.

Coca-Cola shares increased 4.1% due to strong consumer demand and 3M jumped 7.7% following an optimistic full-year outlook. A Reuters poll indicates that 115 out of 117 economists predict a Fed rate cut of 25 basis points on October 29.

The Dow Jones Industrial Average (DJIA) consists of the 30 most traded US stocks and is price-weighted. Factors impacting DJIA include earnings reports, macroeconomic data, and Fed interest rates. Dow Theory and trading options such as ETFs, futures, and mutual funds offer ways to engage with the DJIA.

Nasdaq Lagging Behind

With the Dow Jones hovering near a record 47,100, we are seeing a clear split in the market as the Nasdaq lags behind. The Dow has outperformed the Nasdaq 100 by over 3% this month, marking the most significant divergence we’ve observed since the second quarter. This suggests a rotation into value, a trend that could offer opportunities in pairs trading, such as going long Dow futures while shorting Nasdaq futures.

The upcoming Tesla earnings report is the main event, especially after Netflix’s disappointing results created anxiety in the tech sector. Implied volatility on Tesla’s weekly options has surged past 80%, indicating the market expects a share price move of 10% or more in either direction. Traders should consider strategies like straddles or strangles to profit from this anticipated volatility, regardless of the earnings outcome.

Uncertainty from the US government shutdown is a major factor, as it’s delaying key economic data and clouding the Federal Reserve’s decision-making process. Looking back at the 2018-2019 shutdown, we saw the VIX remain elevated for weeks due to similar data blackouts. This historical precedent suggests buying some protection, such as VIX calls or out-of-the-money puts on the S&P 500, could be a wise move to hedge against a sudden market shock.

All eyes are on the Fed’s meeting next week, with federal funds futures now pricing in a 92% chance of a 25-basis-point rate cut on October 29. While this expectation is supporting the market, it also creates a risk if the Fed delivers anything less than what is priced in. Traders should watch for any shifts in the Fed’s tone, as a hawkish surprise could quickly unwind the recent rally.

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