US business inventories for July showed a growth of 0.2%, matching what analysts had expected. The previous month also recorded a similar increase of 0.2%. Retail inventories, not including autos, rose by 0.1%, consistent with last month’s figures. At the end of July, the total business inventories-to-sales ratio, adjusted for seasonal changes, was 1.37.

Business Inventory Data Shows Stability

This is a decrease from a ratio of 1.40 in July 2024. The July data on business inventories confirms a stable economy, with the 0.2% growth meeting predictions. A key point is the inventory-to-sales ratio, which dropped to 1.37 from 1.40 in July 2024. This indicates that demand is keeping pace with supply, and businesses are effectively managing their inventory. This report suggests that the Federal Reserve will remain cautious, as it does not indicate an overheating or slowing economy. The recent core inflation rate held steady at 2.5%, and the stable inventory figures give policymakers little reason to lower interest rates soon. We expect them to keep the federal funds rate steady for the rest of the year. As a result, we should expect implied volatility to stay low in the coming weeks. The CBOE Volatility Index (VIX) has been around a low of 14, and this steady economic data is unlikely to cause market uncertainty. This environment is favorable for strategies that benefit from low volatility, like selling options.

Retail Inventory Insights

The 0.1% increase in retail inventories, excluding autos, indicates steady, if not remarkable, consumer health. We can expect some stability in consumer-focused ETFs like the XLY and XLP, opening up possibilities for options strategies like selling iron condors or strangles with October and November expirations. Looking back, current inventory levels are in sharp contrast to the excessive stock we had in 2023 and early 2024, which was harmed by supply chain disruptions that affected corporate profits. The improved efficiency now suggests better margin management for companies, indicating a stable market rather than a rapidly changing one. Given this context, focusing on theta-decay strategies for broad market indices like the SPX is wise. With the market unlikely to move dramatically, selling covered calls against long-term holdings or cash-secured puts during dips may provide income. The goal is to take advantage of the market’s expectation of continued stability. Create your live VT Markets account and start trading now.

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