**Dow Jones Market Impact** On Thursday, the Dow Jones fell by 0.65%, the S&P 500 by 0.63%, and the Nasdaq 100 by 0.47%. Zions Bancorporation’s stock dropped 13% after announcing a loss in the third quarter. Meanwhile, Western Alliance shares fell nearly 11% due to a lawsuit announcement. Increased trade tensions between the US and China, particularly criticisms from US officials about China’s rare earth export restrictions, have raised concerns further. The risk-off sentiment is also fueled by the US government shutdown, as the Senate has not passed funding bills, continuing the deadlock into next week. **Hedging Against Market Losses** With US index futures experiencing a sharp decline, it’s wise to hedge against additional losses. The CBOE Volatility Index (VIX) jumped over 15% this week, closing above 22. This signals rising fear, which we can take advantage of by purchasing put options on broad market ETFs like SPY. This defensive strategy is essential as the market processes negative news heading into the weekend. Recent revelations of loan fraud from regional banks show a clear vulnerability in the financial sector. We experienced something similar during the regional banking crisis in 2023, prompting us to consider bearish positions on the SPDR S&P Regional Banking ETF (KRE). Data from the FDIC indicates a 5% increase in non-performing commercial loans for mid-sized banks in the last quarter, reinforcing the strategy of buying puts or shorting futures in this sector. **Market Strategies Amidst US-China Tensions** The mix of US-China tensions over rare earths and the ongoing government shutdown poses a significant challenge to the market. The Congressional Budget Office’s latest forecast suggests that the shutdown is reducing quarterly GDP by 0.2% for each week it continues. This supports the case for short positions on S&P 500 (ES) and Nasdaq 100 (NQ) futures. Additionally, employing options collars on tech-focused ETFs like QQQ or outright put purchases on the SOXX semiconductor index can act as a smart hedge against rising geopolitical tensions. High-growth technology stocks are feeling a stronger impact than industrial stocks. Nasdaq futures are falling more than the Dow. This trend indicates a potential pairs trading strategy—shorting Nasdaq 100 futures while buying Dow futures to benefit from a shift towards perceived safety. This pattern is reminiscent of the interest rate hike cycle in 2022, when the Dow consistently outperformed the Nasdaq during market stress. Create your live VT Markets account and start trading now.

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