The Dow Jones Industrial Average (DJIA) dropped sharply on Thursday, falling about 250 points to around 46,300. This drop came after a period of stability and coincided with the ninth day of a U.S. government shutdown. This shutdown is affecting federal services and raising concerns due to a lack of progress in the Senate. Republicans and Democrats remain stuck, mainly over national healthcare provisions that are about to expire. Democrats want a temporary extension, while Republicans won’t discuss healthcare until the budget issue is resolved, pushing for a replacement of the Affordable Care Act.

Consumer Sentiment and Market Impact

With official data releases paused because of the shutdown, attention has turned to private data sources. One notable source is the upcoming University of Michigan Consumer Sentiment Index, which gauges how consumers feel about their finances and the economy. This Index is crucial because it can influence consumer spending—an essential part of the U.S. economy. High consumer sentiment usually boosts the U.S. Dollar, signaling increased spending, economic growth, and possible inflation. Analysts find this survey valuable since it includes recent consumer interviews, providing timely insights into confidence and affecting market expectations and economic forecasts. The recent fall in the Dow shows that market worries about the nine-day government shutdown are intensifying. We’re also seeing an increase in implied volatility, with the CBOE Volatility Index (VIX) rising above 26 this week, compared to the calmer conditions in September. For derivative traders, this spike in volatility means higher option premiums, creating opportunities for trading larger price swings.

Market Strategy Amid Uncertainty

With no clear end in sight for the political deadlock in Washington, the trend for stocks may be downward in the near term. We recommend buying put options on broad market ETFs like the SPY to take advantage of further declines. A similar situation occurred during the 35-day government shutdown in late 2018 and early 2019, where the markets faced pressure until a resolution was reached. The absence of government data puts significant importance on tomorrow’s University of Michigan Consumer Sentiment Index. Recent private surveys indicate that ongoing inflation, which recently hit a 3.9% annual rate, is starting to strain household budgets. A sentiment reading that falls below expectations could confirm this weakness and potentially lead to another drop in the market. However, it’s important to remember that government shutdowns are temporary. Historically, they end with a market relief rally. Traders looking at the long term might want to consider buying call options with expirations in late November or December to profit from an eventual recovery once a budget deal is made. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now