The Dow Jones Industrial Average rose by about 150 points on Thursday, slightly rebounding from previous losses. While there are worries about US-China trade tensions, positive earnings reports and hopes for interest rate cuts from the Federal Reserve are boosting market confidence. Crude oil prices went up after China stopped buying oil from Russia due to new US sanctions on Russian oil distributors. This increase raises concerns about inflation and could complicate the Federal Reserve’s plans to cut rates further, as it aims for two quarter-point cuts by the end of the year amid rising energy costs.

Impact of US Tariffs on Chinese Goods

China is under close watch as the US plans a 155% tariff on Chinese goods and will implement export controls starting November 1st. The earnings season has been strong, with 80% of S&P-listed companies exceeding analysts’ expectations, despite some firms like Tesla reporting weaker results. The upcoming US Consumer Price Index (CPI) data could influence rate cut expectations if inflation remains high. As the Federal Reserve prepares to review interest rates, the market is focused on expecting two additional cuts by year-end, considering ongoing supply chain issues and the highest inflation rates in decades. With the important US CPI inflation report due tomorrow, we anticipate increased market volatility. The CBOE Volatility Index (VIX) has already risen above 18 this week, up from below 14 earlier this month, indicating that traders are preparing for a significant market event. This situation suggests using options to trade the expected fluctuations in the S&P 500 and Nasdaq indices after the data is released.

Market Strategy and Tariff Concerns

While the Dow is near record highs, the upcoming 155% tariffs on Chinese goods create a risky situation for holding unprotected long positions. We remember how similar trade war escalations in 2018-2019 led to steep declines in stocks. Therefore, buying protective puts on index ETFs like SPY or DIA seems wise to guard against a sudden drop. The market has almost fully priced in an interest rate cut at next week’s Fed meeting, but the recent surge in WTI crude oil to over $95 a barrel poses a new challenge. This spike in energy prices could push the CPI reading higher than expected, putting the Fed in a tough spot. We see a chance in options on Treasury futures to trade a potential rise in interest rate volatility if the Fed shows any hesitation. The geopolitical tensions driving oil prices up seem likely to continue, especially with China halting its Russian oil purchases, which disrupts global energy flows. In 2024, China was Russia’s largest oil buyer, so this decision will have lasting impacts on supply chains and keep upward pressure on prices. For traders, this makes long positions in crude oil futures (CL) or call options on energy stocks a direct way to benefit from this trend. Create your live VT Markets account and start trading now.

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