European stock markets experienced minimal changes as the week and month came to an end. The Eurostoxx slipped by 0.1%, Germany’s DAX stayed flat, and France’s CAC 40 also dropped by 0.1%. In the UK, the FTSE fell by 0.1%, while Spain’s IBEX decreased by 0.2%. Italy’s FTSE MIB remained unchanged. Overall, August was a positive month for stocks, except for France’s CAC 40, which faced challenges due to domestic political issues earlier in the week.

US Market Response

In the US, futures remained steady, with S&P 500 futures down by 0.1%, as traders focused on month-end activities. Despite the lackluster performance, most European indices saw upward trends throughout August. European markets are taking a typical pause, which is common at the end of the month after a good stretch. The earlier gains in August came from lower-than-expected inflation data, but that momentum has now slowed. This quiet finish to the week suggests the market is catching its breath before the traditionally volatile autumn months. The recent rally has driven implied volatility to low levels. The VSTOXX index, which tracks Eurostoxx 50 volatility, is around 14. This level of complacency hasn’t been seen in over a year, making options protection look inexpensive. With September approaching—historically the worst month for the S&P 500 since 1950—purchasing portfolio insurance seems wise.

Investment Strategies and Market Outlook

We recommend buying out-of-the-money puts on major European indices as insurance against a potential seasonal downturn. The specific weakness in France, due to political uncertainty after recent elections, positions the CAC 40 as a strong candidate for bearish strategies. The current low premiums on these options provide a favorable risk-reward opportunity for a possible pullback. In the U.S., the muted futures market reflects the Federal Reserve’s cautious comments from last week’s Jackson Hole symposium. With fed funds futures indicating only a 25% chance of a rate cut before the end of 2025, potential gains appear limited. This environment favors strategies like selling call spreads on the S&P 500 to take advantage of range-bound trading in the weeks to come. Create your live VT Markets account and start trading now.

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