US futures are up, with expectations for new record highs. Earnings from Microsoft and Meta have fueled positive market sentiment. AI-related stocks are performing well, with S&P 500 futures increasing by 1.0% and Nasdaq futures climbing by 1.4%. Tech gains are also benefiting other markets, leading to a 0.5% rise in the Dow. In Europe, the DAX and CAC 40 are up 0.5% and 0.2%, respectively. The DAX ended July with nearly 2% gains, while the CAC 40 saw just under a 3% increase.

Federal Reserve And Market Drivers

While the Federal Reserve’s recent stance wasn’t very dovish, several factors are driving market sentiment. Investors are primarily focused on tech earnings, with more reports expected soon. Apple and Amazon are next to announce their earnings, and updates will follow. The US jobs report is also on the horizon, with significant surprises potentially altering the current market outlook. As the market centers around big tech earnings, traders should pay attention to the momentum from AI. Positive results from one tech leader often boost the entire sector, as shown by the S&P 500 and Nasdaq futures rally. The Nasdaq 100 has risen over 22% since the year’s start, highlighting this trend’s strength.

Strategies And Risk Considerations

Given the solid performances from Microsoft and Meta, derivative traders may want to consider bullish positions before Apple and Amazon release their earnings today. Purchasing short-dated call options for these companies or the QQQ ETF is a straightforward strategy to speculate on another strong AI-driven earnings report. While this approach is aggressive, it fits with the current market focus. That said, we must also consider the risks. The market is overlooking the Federal Reserve’s less-dovish stance from yesterday. The CBOE Volatility Index (VIX), trading near a low of 13, signals high complacency among investors. This low-cost environment allows for cheaper protective put options on the SPY, serving as a hedge against unexpected earnings misses or negative market reactions. Tomorrow’s US jobs report is crucial and could easily shift market trends. A figure around the consensus estimate of 190,000 new jobs would maintain the current calm. However, a significant miss could reignite recession fears and reverse this week’s tech gains. The current pattern resembles the AI rally from late 2023, where a small number of stocks generated most index gains. In this climate, selling out-of-the-money put options on high-quality tech stocks can be an effective strategy to earn premium. This allows profits from stocks either rising, staying stable, or only declining slightly. Create your live VT Markets account and start trading now.

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