In July 2025, US factory orders fell by 1.3%, which is slightly better than the expected 1.4% drop. Last month, there was a bigger decline of 4.8%. If we exclude transportation, factory orders rose by 0.6%, an improvement from the previous month’s 0.4% increase. Orders for durable goods fell by 2.8%, as expected. Durable goods orders that don’t include defense also decreased by 2.5%, matching expectations. Meanwhile, orders for non-defense capital goods, excluding aircraft, increased by 1.1%, which was in line with earlier estimates. The July factory orders report is more positive than the headline -1.3% suggests. The core numbers, especially the 1.1% rise in non-defense capital goods orders, indicate that businesses are still investing in equipment. This suggests a strong economy and may ease recession worries from earlier in the summer of 2025. This strength presents challenges for the Federal Reserve. The last Consumer Price Index (CPI) report for July showed inflation at 3.4%. This new data makes it less likely that the Fed will consider the rate cuts the markets hope for. We may need to prepare for interest rates to stay high, making it wise to buy puts on bond ETFs like TLT to protect against rising yields. For stock indexes such as the S&P 500, this report signals a positive outlook after the volatile trading in August. Selling out-of-the-money puts on industrial and technology sector ETFs seems promising, as this business spending data supports their earnings potential. With the VIX likely to decline from its recent peak above 17, selling volatility appears to be a good strategy. This situation is reminiscent of the sentiment shift in 2023 when the market recognized that the economy could withstand higher rates without collapsing. That time saw growth stocks rally and fear in the market decrease. Thus, buying longer-dated call options on major tech companies or the Nasdaq 100 index could be a wise move to capitalize on a possible upward trend.

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