The US economy started strong this year, but trade policies from the Trump administration have caused uncertainty. This situation has led to market ups and downs, making it harder for businesses to invest and hire. Currently, there’s no clear timeline for fixing trade problems, and as a result, companies are delaying investments.

Positive Job Growth Outlook

There is a hopeful outlook for job growth in the US, thanks to advancements in AI. However, the risk posed by high debt levels will depend on overall confidence. Questions remain about the US’s long-term global role. It’s recommended that individuals do their own research before making investment choices. At the year’s start, the American economy was thriving, but trade conflicts raised concerns. With no resolution in sight, businesses are adopting a cautious approach. They are not investing or hiring as much as they planned. This caution is understandable, as policy changes have made it tougher to forecast, especially regarding imports and long-term investments. From a market perspective, trade tensions have brought about some instability. The trend indicates that many are unsure when or how trade policies will change, influencing how capital is valued. This uncertainty impacts pricing models and how different assets relate to each other, especially in equity derivatives and interest rate hedging. On the structural side, automation and machine learning developments are boosting job expectations, which could lead to greater corporate confidence if productivity improvements are seen in the third quarter and beyond. However, worries about corporate and public debt still weigh on the market, affecting risk appetite.

Revising International Standing

The US is also reassessing its international role. This involves more than just tariffs and trade relationships; it’s about how global capital manages risks when the currency policies are unpredictable. This hesitation has shown up in the options market, where the demand for protection against downturns hasn’t decreased since the first quarter. We’re closely monitoring volatility trends in both US and Asia-Pacific markets, where gamma risk has slightly increased. As these themes evolve, directional biases may need adjustments. Calendar spreads, especially in sectors linked to international supply chains, offer chances for relative value strategies due to frequent market changes. Volatility traders might look at skew positions in these areas, where implied volatility remains high compared to historical levels, suggesting further moves ahead. We’ve seen increased activity in protective puts across cyclical sectors and a rise in steepening strategies—indicating that risk managers aren’t viewing the current calm as permanent. While there’s no panic, there is a clear sense of caution. We see stability in credit spreads but are implementing strict stop-loss rules on core equity holdings to stay protected while maximizing our positions. Managing exposure is crucial. When one-month implied volatility diverges from realized levels, it often presents short-term mean reversion opportunities. We’re focusing on using dispersion in sector ETFs to diversify trades, especially when positioning turns one-sided after central bank speeches or economic data. For those reevaluating volatility assumptions, keeping an eye on the Fed’s upcoming minutes is important. If interest rate sentiments shift, the effects will be felt beyond Treasuries, potentially altering forward curves in S&P 500 options and affecting which strikes remain active. We continue to analyze flows in major derivatives markets and have increased focus on demand for VIX-linked ETPs as indicators of institutional hedging. Together with our proprietary indicators, this provides a clearer view of how effectively downside risks are being managed. As always, we suggest evaluating strategies with independent metrics, while also considering real-world positioning for better alignment with current market exposures. This approach focuses on practical risk management rather than theoretical risks. Create your live VT Markets account and start trading now.

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