Dow futures soar 135 points today: 5 things to know before Wall Street opens

Dow futures climbed 135 points as market conviction for a September Federal Reserve rate cut surged to 98%, driven by tame July inflation and further cooling in labor market data. This increased certainty, alongside a low VIX at 14.7 signaling market calm, has propelled major indices, including the S&P 500 to a new record, though investors are showing increased selectivity outside of the 'Magnificent 7' tech giants.

Analysis

Market sentiment is strongly positive, with Dow futures advancing 135 points, primarily driven by a dramatic increase in market expectations for a Federal Reserve rate cut in September, with odds now priced at 98%. This conviction stems from recent economic data indicating that July inflation remained subdued and the labor market is continuing to cool, supported by downward revisions to hiring in May and June. The risk-on mood is reflected in the S&P 500 and Nasdaq achieving new record closes, and the CBOE Volatility Index (VIX) remains low near 14.7, signaling limited investor anxiety. However, the rally exhibits significant divergence; gains are heavily concentrated in mega-cap technology stocks, while performance in other areas is mixed. For instance, Home Depot is continuing its uptrend, whereas software names like Adobe and Salesforce have breached key support levels. From a technical standpoint, the S&P 500 is in the fifth and final leg of an Elliott Wave impulse pattern above 6,427, which, while suggesting the uptrend is mature, still has potential upside as long as the index holds support around the 6,212 level.

Key Decisions for Investors

• Given the high probability of a September rate cut and bullish technicals, maintaining exposure to major market indices is warranted, though investors should recognize the rally is in a mature phase according to Elliott Wave theory.
• Investors should exercise increased selectivity, as gains are heavily concentrated in mega-cap tech, while other stocks like Adobe and Salesforce are showing technical weakness, indicating a need to scrutinize individual holdings rather than relying on broad market momentum.
• It is critical to monitor the upcoming August employment report, as another soft reading would likely cement the rationale for a rate cut, while also watching the S&P 500's 6,212 support level, as a breach could signal a reversal of the current uptrend.