European shares ended the day on a positive note, fueled by hopes for peace talks and a reduction in tariff impacts. Presidents Trump and Putin are set to meet in Alaska this Friday. Trump talked about this meeting with European leaders and Ukraine’s Zelenskiy, giving the plan a thumbs up. Key European indices closed higher: – The German DAX went up by 0.67% – France’s CAC increased by 0.66% – The UK’s FTSE 100 rose by 0.19% – Spain’s Ibex gained 1.08% – Italy’s FTSE MIB advanced by 0.60%

US Stock Market Performance

In the United States, the stock market showed mixed results. The Dow Jones Industrial Average climbed 317 points (0.71%) to reach 44,775. The S&P 500 edged up by 4.56 points (0.07%) to hit 6,450.42. Meanwhile, the NASDAQ dipped slightly by 1 point (0.01%) to 21,680. In the US debt market, yields decreased. The 2-year yield dropped by 5.0 basis points to 3.680%. The 5-year yield fell by 5.9 basis points to 3.763%. The 10-year yield decreased by 6.2 basis points to 4.230%, and the 30-year yield slid down by 6.4 basis points to 4.821%. The upcoming Friday meeting is adding uncertainty to the market, despite the current positive sentiment. We suggest traders consider buying near-term volatility since options on the S&P 500 may be undervaluing the potential for a sharp move after the meeting. The CBOE Volatility Index (VIX), which measures market fear, has been around 16 but may spike if the summit’s outcome isn’t seen as a clear success. The difference in performance between the Dow and NASDAQ shows a shift away from high-growth tech stocks to industrial stocks. We have seen this before, especially earlier in 2022, when rate-hike fears first impacted the market. Consider selling call spreads on tech-focused ETFs while buying call spreads on industrial sector ETFs to take advantage of this trend.

Market Sentiment and Strategy

While European markets are rising on hopes for peace, we should remember that the 2018 Helsinki summit led to unexpected volatility afterward. The current optimism seems fragile and might change quickly if the Alaska meeting doesn’t yield a clear plan for de-escalating tensions in Ukraine. Buying out-of-the-money puts on the SPDR S&P 500 ETF (SPY) with a late August expiry can be a cost-effective hedge against a negative outcome. The drop in Treasury yields, particularly with the 10-year now at 4.23%, contrasts with the equity market’s optimism. This move toward the safety of government bonds indicates that a significant portion of the market is preparing for slower economic growth or a risk-off event. We see a chance to buy call options on bond ETFs like the TLT, which would benefit if yields continue falling due to geopolitical tensions or disappointing economic data. Create your live VT Markets account and start trading now.

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