U.S. stocks had mixed results as worries about inflation countered hopes for peace and potential interest rate cuts. The Dow Jones avoided a decline, mainly thanks to UnitedHealth Group, which jumped 11.98% after Berkshire Hathaway bought its shares. During trading, the Dow reached a high of 45,203.52, fueled by excitement over UnitedHealth’s news. However, as investors took profits, the index dropped back, closing at 44,946.12, below its earlier record from the week.

Mixed Market Performance

The overall market showed mixed results. The S&P 500 and Nasdaq Composite had different outcomes, with tech sectors struggling while some cyclical sectors remained stable. Without UnitedHealth’s boost, the Dow might have fallen like the other indices. Closing levels were: – Dow: up 34.86 points or 0.08% to 44,946.18 – S&P: down 18.74 points or 0.29% to 6,449.80 – NASDAQ: down 87.69 points or 0.43% to 21,622.98 – Russell 2000: down 12.55 points or 0.55% to 2,286.52 For the week, the Dow increased by 1.74%, outpacing the S&P 500’s 0.94% and Nasdaq’s 0.81% gains. The market is caught between hopes of a Federal Reserve rate cut and fresh concerns about inflation. Although the Dow set a new record this week, it didn’t hold, indicating weak confidence. The latest Import Price Index surged 1.2% month-over-month, marking the sharpest rise since the inflation spikes in 2022.

Market Strategies and Sector Performance

This uncertainty suggests that volatility may be underestimated, which could be important in the coming weeks. The CBOE Volatility Index (VIX) rose to 17.5 after mainly trading below 15 in July, signaling increased trader anxiety. This environment might make long straddles or strangles on broad indices like the S&P 500 appealing, as they benefit from significant price changes in either direction. The limited market rally is another warning sign, as the Dow’s rise was largely due to one stock. Market breadth is weakening, with the NYSE’s advance-decline line not confirming the Dow’s new highs. For traders with long positions, this is a moment to consider hedging by buying protective puts on the SPY ETF. A clear shift seems to be happening, with strength in healthcare and weakness in technology and small-cap stocks. While Fed funds futures show a 65% chance of a rate cut at the September meeting, the current market momentum favors defensive sectors. This trend could be leveraged by using call options on the healthcare sector ETF (XLV) and put options on the Nasdaq 100 ETF (QQQ). Create your live VT Markets account and start trading now.

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