The Dow Jones Industrial Average fell on Tuesday, dropping below last week’s close but staying within a stable range. The US Consumer Price Index (CPI) showed that inflation is still above what the Federal Reserve aims for, which has affected hopes for a rate cut this summer. At the end of the second quarter, inflation increased, with the CPI rising to 2.7% year-on-year in June. This rise in inflation has made a quick rate cut by the Federal Reserve less likely.

Fed’s July Meeting Forecasts

According to the CME’s FedWatch Tool, the odds for a rate hold at the Fed’s July meeting are fully priced in, while only 44% expect a hold in September. Even with ongoing inflation, there’s an 80% chance of at least a quarter-point rate cut by October 2025. Nvidia is in the news again because it’s received permission to restart sales in China, although changes in regulations could have mixed effects. Nvidia’s market cap has reached $4 trillion, an impressive milestone, and its stock has increased by 1,500% since its low in October 2022. The Dow Jones dropped over 0.85%, losing nearly 400 points, even as tech stocks gained. The index remains generally positive but is lagging behind tech-focused competitors, still below previous record highs.

Market Volatility Expectations

The recent inflation data suggests we should take a cautious approach in the coming weeks. With consumer prices still high, the timeline for a potential rate cut from the central bank seems to be pushed further away. This situation indicates that we should brace for continued uncertainty and fluctuating prices in the overall market. With mixed signals about a policy change in September, we expect market volatility to rise from current low levels. The CBOE Volatility Index, or VIX, is around 13, significantly lower than its long-term average of about 20. This makes options more affordable, creating an opportunity to utilize straddles on broad market indexes for profit from significant price movements, regardless of direction. Concerning the chipmaker seeing a valuation increase, we face risks from the regulations governing its international business. We suggest using call spreads to take part in potential upsides while keeping costs down and capping maximum risk. This strategy lets us stay involved with the stock’s strong momentum while being mindful of possible sharp declines. The Dow’s underperformance compared to its tech-focused counterparts indicates a potential opportunity. A pairs trade—buying a tech index tracker while shorting an index tracker that lags—can capitalize on this performance gap. For those holding long positions, purchasing protective puts on an index like the SPY provides direct protection against a potential market drop due to high interest rates. Create your live VT Markets account and start trading now.

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