NFP Preview: Dow Jones seeks further gains after the election

A 3% rise yesterday gave the Dow Jones its best post-midterm performance in 44 years, with futures now signalling that gains could continue today.

Not since April 2025 has the Dow recorded a larger one-day percentage increase, following the blue sweep in the U.S. midterm elections. Treasury yields have moved lower as uncertainty has receded, oil prices have fallen sharply by 10% and expectations have emerged that political gridlock could curb spending. Democratic control of Congress could also reduce pressure on the Federal Reserve and leave policymakers greater scope to act independently.

While technology shares continue to sell off, the Dow's performance has been notably stronger. The Democrats' position has been anti-AI, or at least supportive of a slower pace than the rapid rollout now taking place. With the AI trade already vulnerable, that stance could put it under further pressure.

Investors are therefore moving away from technology shares and towards the Dow. The shift has kept tech behind the broader market, with Nasdaq futures 0.8% lower.

NFP forecasts point to an improvement in job growth

An improvement on September's weak reading and a broadly stable labour market are expected from tomorrow's nonfarm payroll report, the next hurdle for the Dow Jones.

October's U.S. employment increase is forecast at 65,000. That would mark a recovery from the weak September gain of 29,000, which undershot the forecast of 130,000 by a considerable margin.

Having edged higher to 4.2% in September, unemployment is forecast to remain at that rate. A slight acceleration in wage growth is also expected, though the pace should remain below one that would add to inflationary pressure.

The leading indicators suggest the NFP figures could come in slightly ahead of expectations. Private payroll growth reported by ADP beat forecasts at 86,000. In the U.S. ISM Services PMI, the employment component increased to 51.4 from September's 50.1. The ISM Manufacturing Employment Index, however, recorded a modest decline, moving to 52.4 in October from 52.7 in September. September also brought a jump in U.S. job openings, while layoffs are at a 1.5-year low.

Against this backdrop, market pricing puts the likelihood of a Federal Reserve rate rise of 25 basis points next month at 80%.

A strong NFP report could weigh on the Dow Jones

December rate rise expectations could become more firmly established if U.S. nonfarm payrolls beat forecasts, potentially pushing Treasury yields higher and putting pressure on stock indices such as the Dow Jones. An increase of over 100,000 jobs coupled with unemployment of 4.1% would constitute a strong report. Such an outcome could move markets and strengthen expectations that the Fed will take a more hawkish approach next year.

Even a weaker release is unlikely to produce a substantial shift in December rate rise expectations. The Fed has explicitly placed greater emphasis on inflation within its dual mandate: inflation is still well above the 2% target, and Kevin Warsh has said that, in his view, unemployment and job growth are consistent with the Fed's mandate.

Dow Jones breaks higher as technical momentum remains positive

Trading above its descending channel, the Dow Jones has recently bounced from support at 51,350 along the channel's upper boundary. The subsequent advance carried it above the 50 EMA and key resistance to 53,600. An RSI reading above 50 adds momentum support to the constructive outlook.

The September peak at 53,800 provides the next resistance test for buyers. If the index clears that level, the focus shifts to 54,750 and further record highs.

The October high at 53,000 offers the first support on the downside. Losing that level would leave the 50 EMA at 52,200 exposed, with yesterday's low of 51,300 next in line. Beneath that, the 200 EMA at 50,800 becomes the focus.