European stocks opened higher, driven by strong earnings from Microsoft and Meta. This positive trend is clear in market indices: the Eurostoxx rose by 0.3%, Germany’s DAX increased by 0.4%, and France’s CAC 40 went up by 0.1%. The UK FTSE also improved by 0.3%, while Spain’s IBEX saw the largest gain at 1.0%. Italy’s FTSE MIB stayed the same. In the US, futures are also rising, with the S&P 500 futures up by 0.9% and Nasdaq futures up by 1.3%.

Tech Sector Performance

These increases are mainly driven by the tech sector, thanks to the results from Microsoft and Meta. Dow futures have climbed by 0.3% as the month comes to a close, enhancing overall market optimism. With Microsoft’s and Meta’s strong earnings, there’s a noticeable risk-on sentiment as we finish the month. The rise in Nasdaq futures suggests that short-term strategies, such as buying call options on tech-focused indices, are appealing. These gains are not just temporary: Microsoft’s Azure cloud business grew 25% last quarter, and Meta reported over 4.2 billion daily active users, providing solid support for this rally. This positive energy is spreading to Europe, where both the DAX and Eurostoxx are showing robust growth. Spain’s IBEX is particularly strong, leading the gains this morning. With the European Central Bank maintaining the key rate at 2.25% last week, a stable policy environment bodes well for further gains in European stocks in the weeks ahead. We also need to consider volatility. The VIX index, which measures market fear, has dropped to around 14, much lower than the low 20s earlier this year during uncertain times. This makes options cheaper, favoring strategies that depend on market direction rather than on volatility.

Market Outlook

As we approach August, we should stay cautious. Historically, August is known for its sudden swings. The unexpected downturn in August 2024 serves as a reminder of the dangers of complacency. A wise strategy would be to lock in some profits by buying inexpensive out-of-the-money S&P 500 put options as a hedge. This rally feels similar to the tech-driven rise in late 2023, but it has stronger foundations. Recent US inflation data for June showed a manageable 2.8%, giving the Federal Reserve little reason to change its path. This indicates that the market’s strength is backed by solid corporate performance and a stable economic outlook. Create your live VT Markets account and start trading now.

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