The major U.S. stock indices ended the day at their highest points, with the S&P and NASDAQ hitting new records. The Dow Jones was just 4 points away from its all-time high. – The Dow gained 507.85 points (1.14%) to close at 45,010.29. – The S&P rose by 49.29 points (0.78%) to reach 6,358.91. – The NASDAQ increased by 127.33 points (0.61%) to finish at 21,020.02. – The Russell 2000 also climbed, adding 34.37 points (1.53%) to close at 2,283.12.

Corporate Earnings Reports

Trading was influenced by several earnings reports, starting with Alphabet. Alphabet’s Q2 2025 earnings surpassed expectations, reporting an EPS of $2.31 and revenue of $96.43B, even though its shares fell by $3.12. Tesla fell short on EPS expectations but did beat revenue forecasts; its shares dropped by $1.46. ServiceNow beat both EPS and revenue estimates, leading to a $56.73 increase in its shares. Chipotle met EPS expectations but missed on revenue, causing a drop of $4.78 in its shares. IBM also exceeded EPS and revenue expectations, but its shares fell by $13.26. Both T-Mobile and CSX surpassed earnings estimates; T-Mobile’s shares declined slightly, while CSX shares rose by $0.42. With the market at record highs, there’s growing optimism, but this calls for caution. The AAII Investor Sentiment Survey indicates that bullish sentiment is at nearly 45%, well above the historical average. This often signals potential market pullbacks, suggesting that complacency is setting in. Now is a good time to think about protective strategies.

Market Volatility and Risk Management

The after-hours reactions to earnings reports serve as a warning sign. When a major player like Alphabet beats expectations but still sees a drop in share price, it indicates that high expectations are already built into the stock price. We believe that selling elevated volatility around future earnings, using strategies like short straddles or strangles, could be beneficial. Currently, the CBOE Volatility Index (VIX) is trading near 13, a low level that suggests market calm is fragile. In the past, such low volatility periods, like in late 2021, have often preceded periods of sharp market turbulence. Therefore, purchasing longer-dated, out-of-the-money put options on major indices can provide inexpensive portfolio insurance. We’re also noticing a significant performance gap, with small-cap stocks outperforming mega-cap tech stocks. This could signal a shift, making options on the Russell 2000 more appealing for bullish plays compared to the NASDAQ. This strategy allows traders to remain invested while also moving away from the most crowded and vulnerable areas of the market. Given the uncertainty at these peak levels, we prefer defined-risk spreads over buying naked options. Bear call spreads on overextended tech stocks, or bull put spreads on the strengthening small-cap index, help capture premium while limiting potential losses. This is a smart way to manage risk when market direction is unclear. The market’s next major shift will likely depend on upcoming macroeconomic data, not just corporate earnings. With the latest jobs report showing a strong labor market, any signs of rising inflation in the next CPI report could push the Federal Reserve toward a more aggressive approach. This remains a key factor that could trigger the anticipated volatility. Create your live VT Markets account and start trading now.

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