Citi has revised its year-end target for the S&P 500 to 6,600, up from 6,300 for 2025. Even though the third quarter may bring challenges, AI-driven stocks are expected to greatly support Wall Street. Other companies, like Goldman Sachs, have also raised their S&P 500 forecasts to 6,600, while Oppenheimer predicts it could reach 7,100. Overall, market sentiment looks positive, with many expecting growth.

Focus on Call Options

With major firms aiming for 6,600 by the end of the year, it might be wise to consider buying call options to benefit from this anticipated rise. As it is now mid-August, contracts that expire in December 2025 provide a good mix of time and potential profit. This will allow us to join in the expected rally through the year’s end. The market is showing strong signs, with the S&P 500 up over 18% year-to-date, recently surpassing the 6,150 mark. This upward movement is driven by the AI sector, where leading companies beat Q2 earnings estimates by an average of 12%. Furthermore, the July CPI report came in at a mild 2.9%, giving the Federal Reserve little reason to raise rates and disrupt this trend. Of course, we must also consider the possibility of a slower third quarter. To manage this risk, we can hedge our long positions by buying shorter-term put options, possibly with September or October 2025 expirations. Since the VIX is around a low 14 currently, this type of protection for our portfolio is not too costly. We should direct our strategies toward the AI-driven stocks fueling this market. Using call spreads on leading technology ETFs is a smart, cost-effective way to bet on their continued strength. Selling cash-secured puts on strong AI stocks after any slight dips is another strategy to express a positive outlook while collecting some premium.

Historical Market Trends

This scenario feels reminiscent of late 2023, when the market slowed in the summer months before rallying strongly into the new year. It seems wise to brace for some short-term weakness while maintaining a positive outlook for the fourth quarter. This approach allows us to manage risk during the typically slower months of August and September. Create your live VT Markets account and start trading now.

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