Dow futures fall despite easing Fed rate hike expectations

U.S. stock index futures were mixed during European trading on Monday. Dow Jones Industrial Average futures edged lower, while Nasdaq 100 futures rose notably by 0.5%, trading near 30,290 points, indicating capital flows returning to tech growth stocks. S&P 500 futures also posted gains.

**Tech stocks regain favor, value sector under pressure**

The market shows a clear structural rotation. The strength in Nasdaq futures reflects investor confidence in the earnings outlook of large-cap tech companies. Despite recent discussions about a potential Fed rate hike resumption, which theoretically pressures high-valuation sectors, earnings growth expectations driven by AI capital spending appear to be offsetting the negative impact of rising discount rates. In contrast, the weakness in Dow futures suggests that value stocks, which are more sensitive to the economic cycle, are temporarily out of favor.

**Rate hike expectations ease, but tightening risks remain**

Recent cooling economic data has softened market expectations for aggressive Fed rate hikes. According to the CME FedWatch Tool, the probability of a September rate hike once fell to 53% due to weak labor data. However, at his first policy meeting as Fed Chair, Warsh revised the median projection for the end-2026 rate upward to 3.8%, signaling a possible rate hike. Morgan Stanley Chief Investment Officer Mike Wilson noted that compared with rate hikes, liquidity tightening poses the main near-term threat to U.S. equities, and he expects volatile market movements in July.

**Market focuses on earnings vs. liquidity tug-of-war**

The core contradiction in the current market lies in the tug-of-war between corporate earnings growth and liquidity tightening. Bank of America has already projected three Fed rate hikes this year, though this view remains in the minority. Market participants broadly believe that even if the Fed resumes hikes in September, the impact is more likely to be a short-term disturbance. Future market direction will depend on upcoming economic data and whether corporate earnings can continue to provide fundamental support.