The Dow Jones Industrial Average fell 400 points on Thursday, hitting its lowest level in almost two weeks. This drop was driven by a major sell-off in AI tech stocks, pushing the Dow below 47,000 — a 2.6% decline from its highs in October. US economic data has become less dependable because of the government shutdown, leading to a greater reliance on private data. The Challenger Job Cuts report revealed over 153,000 job losses in October, marking the second-highest number of job cuts since data collection began, excluding the Covid era.

Longest Shutdown Impact

The current shutdown is the longest in US history and has affected the availability of official economic data. The Dow Jones Industrial Average is price-weighted and includes 30 traded stocks in the US. It is calculated by dividing the total stock prices by a factor of 0.152. The index reacts to earnings reports from companies, macroeconomic data, interest rates, and inflation. Dow Theory helps identify trends by comparing different indices, such as the DJIA and DJTA, and looks for patterns where both move in the same direction. You can trade the DJIA through ETFs like the SPDR Dow Jones Industrial Average ETF, DJIA futures contracts, and options. Mutual funds also offer exposure to this index by investing in a range of DJIA stocks. There is a noticeable shift in market sentiment as the Dow pulls back from its record highs of late October 2025. The exit from high-flying AI stocks like Nvidia and Microsoft indicates that traders are starting to question valuations that have been high for many months. This shift is causing volatility, creating clear opportunities for traders of derivatives.

Market Reaction to AI Sell-Off

The main cause of this sell-off is a reality check regarding AI-driven revenues, a concern that also appeared during the 2023-2024 tech rally. With forward P/E ratios becoming unsustainable, traders might consider hedging long-term tech investments by buying put options on tech-heavy ETFs. Selling covered calls on specific stocks like Salesforce or Microsoft can also generate income while offering some protection from declines in this uncertain market. The ongoing government shutdown, now the longest in US history, is making the economic situation unclear and markets uneasy. We experienced similar uncertainty during the 2018-2019 35-day shutdown, which caused wild and unpredictable swings as investors reacted to rumors instead of data. This reliance on fluctuating private data, such as the recent weak Challenger Job Cuts report, significantly raises risk. In light of this heightened uncertainty, focusing on volatility will be crucial in the coming weeks. We’ve seen the VIX, or the market’s “fear gauge,” soar from the low teens to over 30 during past stressful periods, like the late 2018 market correction. Traders should consider buying VIX call options or VIX futures to benefit from the anticipated rise in market volatility. Following Dow Theory, we need to closely monitor the Dow Jones Transportation Average (DJTA) for signs of confirmation of this downturn. If the transportation index does not decline alongside the industrials, we could be facing a temporary correction rather than the onset of a new bear market. However, if both indices drop, that would strongly suggest increasing bearish positions. Create your live VT Markets account and start trading now.

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