US indices are rising, with the NASDAQ and S&P hitting new record highs. The Dow Jones is lagging behind, as 19 out of its 30 stocks are down. Nvidia shares increased by $7.81, up 4.81%, reaching a peak of $172.26. This follows the U.S. government’s approval for Nvidia to restart AI chip shipments to China.

Financial Sector Earnings

J.P. Morgan, Citigroup, Wells Fargo, and BlackRock all reported better-than-expected earnings. However, most of their stock prices fell. BlackRock dropped 6.08%, Wells Fargo fell 4.93%, J.P. Morgan was down 0.80%, while Citigroup saw a slight increase of 0.77%. The US Consumer Price Index data met or fell below expectations. The “Goods CPI” rose 0.7%, the fastest monthly increase in two years. This suggests a possible 0.35% core PCE gain per Pantheon Macroeconomics. Tomorrow’s Producer Price Index data may impact this estimate, likely showing an upward trend. We are seeing a classic tale of two markets, a situation that should alert every trader. While tech-focused benchmarks hit new records, the industrial average—the backbone of the American economy—shows warning signs. This isn’t widespread strength; it’s a concentrated rise, which creates fragility. Nvidia’s nearly 5% jump based on the news from China demonstrates this perfectly. That one company now accounts for more than 35% of the S&P 500’s gains this year.

Market Sentiment and Inflation Concerns

While the tech sector celebrates, there are warning signals from the financial industry. The reports from J.P. Morgan and BlackRock were strong, yet the market reacted negatively. This isn’t just about the past quarter; it’s a sign of doubt about the future. Investors are overlooking solid earnings, selling out of fear regarding future challenges like shrinking net interest margins or an overall economic slowdown. When the market dismisses good news from major financial institutions, we need to take notice. This brings us to important inflation data. The initial CPI report seemed harmless; however, as Pantheon Macroeconomics pointed out, the underlying data told a different story. The increase in goods prices was just the first sign. The upcoming Producer Price Index data confirmed our view, coming in with a 0.4% monthly rise—twice what was expected. This indicates that inflation is not resolved but merely shifting, with tariff impacts starting to affect wholesale prices before they reach consumers. For us, the action plan is clear. The VIX is resting around 13, a level that historically indicates complacency. Trying to fight the trend in large tech stocks is risky, but ignoring the growing dangers is unwise. This situation is perfect for securing protection. With low implied volatility, out-of-the-money puts on broader indices like the SPY and QQQ are priced significantly low. We see this not as a pessimistic call, but rather a sensible one. It’s a potentially profitable bet where the cost of insurance is very low compared to the possible payout if this narrow rally starts to falter. For those who want to remain long, now is the time to consider protective collars on individual stocks that have soared. The market is offering cheap insurance. Create your live VT Markets account and start trading now.

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