US stocks began the day on a positive note, bouncing back from Tuesday’s decline. The tech sector, especially the Nasdaq, rose by 0.4%. However, some tech stocks, like Palantir, are still considered overvalued and dropped by 4%. On the other hand, major tech companies like Amazon, Meta, Tesla, AMD, and Nvidia have lower price-to-earnings (P/E) ratios compared to their 10-year averages, which helps to stabilize their market positions.

Market Fundamentals

The S&P 500 has a price-to-earnings ratio of 25, while the Nasdaq 100 sits at 31. Although these figures are above the average from the past five years, they are not high enough to trigger a sell-off. Both indices show strong gross margins, with the Nasdaq 100 at 52% and the S&P 500 at 38%, compared to 31% for the Russell 2000. Most blue-chip companies in the S&P 500 are reporting positive earnings, with only 6% showing losses. Overall, market fundamentals look strong, and there is a good chance of interest rate cuts before the year ends. The job market is stable, as the ADP report indicates a surprising increase of 42,000 jobs in October. This stability bodes well for the US consumer and tech sectors. Weaker sectors in the S&P 500 may improve with favorable economic conditions. After the market’s quick recovery on November 4, 2025, implied volatility has likely decreased from its previous peak. This presents a chance for us to sell premium, believing that the recent sell-off was an overreaction and not the beginning of a new downtrend. We should think about selling cash-secured puts or put credit spreads on solid S&P 500 companies that experienced dips, allowing us to either earn premium or buy quality stocks at lower prices. The outlook for large-cap tech remains positive, with key players like Nvidia and Meta trading at P/E ratios below their 10-year averages. To take advantage of this, we might consider using bull call spreads on the Nasdaq 100 ETF (QQQ) in the upcoming weeks. This approach lets us participate in potential gains while managing our risk, which is a wise idea following Tuesday’s market reminder.

Tech Sector Perspective

We believe this situation is not comparable to the dot-com bubble when reviewing historical data. In late 1999, the Nasdaq 100’s P/E ratio surpassed 80, a huge difference compared to today’s ratio of 31, which is backed by strong earnings and margins. Thus, we should view any significant drops in the tech sector as opportunities to buy rather than signs of a bubble. With the likelihood of a Federal Reserve rate cut before the year ends—currently assessed by the CME FedWatch Tool at over 65%—stocks have favorable conditions. This is especially true for consumer-focused sectors that recently suffered losses. We see potential in purchasing calls on the Consumer Discretionary Select Sector SPDR Fund (XLY), which dropped over 12% in October 2025 but could see a quick recovery with positive economic news. Despite this upbeat view, Tuesday’s sell-off serves as a reminder that markets can shift rapidly. To guard against sudden drops, we can buy inexpensive out-of-the-money put options on the SPX, set to expire in late December. This strategy provides economical insurance for our portfolios, allowing us to stay invested while protecting against risks on the downside. Create your live VT Markets account and start trading now.

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