The Dow Jones Industrial Average dropped over 500 points as US-China trade tensions continue. The US is thinking about limiting software exports to China, largely because of China’s control over rare earth minerals, which is impacting the tech industry. PrimaLend, a lender for subprime loans, has filed for bankruptcy, adding more strain to credit markets in the US, following a recent collapse of an automotive lender. Additionally, US farmers are unhappy with President Trump’s plan to import beef from Argentina after imposing tariffs on Brazilian beef.

Inflation and the CPI

The Consumer Price Index (CPI) measures inflation by looking at the prices of goods over time, excluding the often-changing prices of food and energy (CPI Ex Food & Energy). Typically, when the CPI is high, the US Dollar strengthens, but when it’s low, the Dollar weakens. The US Federal Reserve aims for stable prices and maximum employment, targeting a yearly inflation rate of 2%. Current inflation, mainly caused by supply issues, keeps the CPI elevated. The Fed plans to stick to its strong approach in controlling inflation for now. With fresh caution and the Dow’s recent struggles, the market is experiencing higher volatility. The CBOE Volatility Index (VIX) has increased to 25 this week, indicating that traders expect larger market fluctuations. Buying options, like puts on major market indices such as SPY, could be a smart way to protect against further losses.

Trade Friction with China

Growing trade tensions with China directly threaten the tech sector, which relies on rare earth minerals from China. The Technology Select Sector SPDR Fund (XLK) has dropped almost 6% since these issues arose in early October 2025. This situation mirrors the trade disputes of 2018-2019, making puts on major semiconductor and hardware companies a sensible option. The PrimaLend bankruptcy highlights issues in credit markets, warranting a cautious approach to financial stocks. High-yield corporate bond spreads have widened by 50 basis points this month, indicating increasing credit risk. We should keep an eye on regional bank stocks and explore strategies that could benefit from a downturn in the financial sector. Persistent high inflation is pushing the Federal Reserve to maintain a tough policy. The latest CPI data from September 2025 shows core inflation at 3.9%, nearly double the Fed’s goal. This raises expectations for higher interest rates for a longer time, making derivatives tied to interest rate futures, like options on the 2-Year Treasury Note, valuable tools. A strict Federal Reserve is also strengthening the US Dollar, with the U.S. Dollar Index (DXY) reaching a 12-month high of 108.50. This situation is challenging for US companies with a lot of international sales but offers chances in currency derivatives. It may be wise to take long positions in the dollar against currencies from central banks that are taking a softer approach. Create your live VT Markets account and start trading now.

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