In July 2025, the S&P Global Services PMI showed an increase, with the services index rising to 55.7 from 52.9 in June. The preliminary estimate had been 55.2. The composite index also increased, going up to 55.1 from 52.9 last month, which is close to the preliminary figure of 54.6. The upcoming ISM non-manufacturing index is expected to reach 51.5, up from 50.8 in June. In the US service sector, five out of seven sectors saw more business activity in July, compared to four the previous month. Technology experienced its fastest growth since June 2021, while the financial sector grew at its quickest pace since December 2024.

Sector Growth Overview

Industrials have now expanded for 18 consecutive months, showing the sharpest increase since May 2022. The Consumer Goods and Consumer Services sectors had slight growth, with Consumer Goods being the weakest in its current four-month growth streak. Healthcare saw a small decline, the largest since May 2024. Basic Materials faced a fifth consecutive monthly decline, with the drop rate speeding up from June. The services sector showed strong performance in July, with the final PMI reading of 55.7 significantly higher than last month. This suggests that the overall economy is stable. Given this strength, we believe the Federal Reserve won’t rush to cut interest rates. The main story is the growing divide within the economy. Technology is experiencing its fastest growth since mid-2021, and both financials and industrials are also expanding quickly. Meanwhile, consumer sectors are slowing, and basic materials are struggling more than ever.

Market Volatility and Strategies

This divergence means the overall market volatility should stay low as recession fears diminish. The VIX, which measures market volatility, has dropped below 14 in recent weeks, a level not consistently seen since late 2024. This situation is good for strategies focusing on selling options premium. We should focus on the clear winners. Buying call options on technology ETFs like XLK is a straightforward way to capitalize on this momentum, especially since the sector has risen over 20% since January 2025. The ongoing strength in industrials, now for 18 months, also supports bullish positions in that area. Conversely, we must consider bearish options on weaker sectors. Buying put options on basic materials ETFs like XLB is a wise move since this sector has contracted for five straight months and is down 5% year-to-date. This creates an opportunity to profit from the disparities between strong and weak areas of the economy. With robust data pushing back rate cut expectations, derivatives linked to interest rates are also in play. Fed funds futures now indicate a less than 15% chance of a rate cut by year-end, down significantly from June. This hawkish trend suggests that buying put options on long-duration Treasury bond ETFs could be a smart hedge. Create your live VT Markets account and start trading now.

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