NFP Preview: Can the post-election rally in the Dow Jones continue?

Further gains look likely for the Dow Jones today, with futures pointing higher after yesterday's 3% surge marked the index's strongest post-midterm rally in 44 years.

Following a blue sweep in the U.S. midterm elections, the Dow registered its biggest one-day percentage advance since April 2025. Treasury yields have fallen as uncertainty has cleared, expectations have grown that political gridlock could restrain spending, and oil prices have dropped a sharp 10%. With Democrats taking control of Congress, pressure on the Federal Reserve could also ease, allowing policymakers greater independence.

Against the continuing sell-off in technology shares, the Dow's outperformance stands out. Democrats have opposed AI, or at least favoured a more measured approach than the rapid rollout currently under way. Their stance comes as the AI trade is already looking vulnerable and could come under additional pressure.

Investors are consequently shifting out of technology shares and into the Dow. That rotation has left tech trailing the broader market, with Nasdaq futures down 0.8%.

Will the NFP Report Show a Firmer Labour Market?

Tomorrow's nonfarm payroll report presents the next test for the Dow Jones. The release is expected to improve on September's weak figure while signalling that the labour market remains broadly stable.

Forecasts point to 65,000 jobs being added in the U.S. in October, compared with September's subdued increase of 29,000. That September figure fell well short of the 130,000 forecast.

After edging up to 4.2% in September, the unemployment rate is expected to hold steady. Wage growth, meanwhile, is forecast to pick up modestly but should stay below a rate that would intensify inflationary pressures.

A modest upside surprise in the NFP report is suggested by leading indicators. At 86,000, ADP private payroll additions exceeded expectations. The employment component of the U.S. ISM Services PMI climbed from 50.1 in September to 51.4, whereas the ISM Manufacturing Employment Index eased from September's 52.7 to 52.4 in October. U.S. job openings also rose sharply in September, while layoffs stand at their lowest level in 1.5 years.

Ahead of the release, markets are assigning an 80% probability to a 25 basis points rate increase by the Federal Reserve next month.

Could the NFP Release Shift Market Expectations?

Treasury yields could rise and stock indices, including the Dow Jones, could come under pressure if U.S. nonfarm payrolls exceed expectations and reinforce the case for a December rate increase. Job additions above 100,000, alongside an unemployment rate of 4.1%, would represent a strong report that could prompt a market response and bolster expectations of a more hawkish Fed next year.

By contrast, a softer report is unlikely to materially alter expectations for a December rate increase. The Fed has made clear that inflation is its greater concern within its dual mandate. Price growth remains well above the 2% target, while Kevin Warsh has said he considers the unemployment rate and job growth consistent with the Fed's mandate.

Can the Dow Jones extend its technical breakout?

A breakout has taken the Dow Jones above its descending channel. After recently rebounding from support at 51,350 on the falling channel's upper boundary, the index extended its advance above the 50 EMA and key resistance to reach 53,600. Momentum reinforces the positive technical picture, with the RSI holding above 50.

The September high of 53,800 is the next resistance level buyers will seek to test. A move through that level would bring 54,750 and new record highs into focus.

Initial support on a pullback lies at the October high of 53,000. Should that level give way, the 50 EMA at 52,200 would be exposed, followed by yesterday's low of 51,300. A further decline would shift focus to the 200 EMA at 50,800.