North American stock markets are breaking records. Canada’s S&P/TSX Composite Index and America’s Dow Jones Industrial Average (DJIA) have both reached all-time highs. On October 12, the S&P/TSX climbed 418.33 points to finish at 30,827.58, while the Dow surpassed 48,000 points for the first time, gaining 328 points. Canada’s S&P/TSX is showing steady growth, rising in eight of the last ten trading days. It has increased by 24.67% this year, thanks to strong corporate earnings. Key contributors to this growth include metal mining companies and the food retailer Loblaw.

The Canadian Labour Market

The Canadian job market also improved. In October, 66,600 new jobs were added, reflecting resilience despite challenges like U.S. tariffs. The unemployment rate dropped to 6.9%. In the U.S., the end of the government shutdown eased political uncertainty, boosting market confidence. The Dow’s rise was supported by strong performances from companies like UnitedHealth and IBM, even with ongoing concerns about spending and potential future shutdowns. Upcoming economic data, which was delayed by the U.S. shutdown, may affect market reactions and Federal Reserve policies. Investors are currently focused on solid corporate earnings and economic indicators as key drivers for continued market strength. With last month’s record highs, implied volatility has likely decreased. This makes options contracts cheaper, allowing investors to prepare for market movements without risking large amounts of capital. A key upcoming event is the release of delayed economic data now that the U.S. government has reopened.

Market Volatility

We should expect significant market volatility as this delayed information is made public. Historically, the CBOE Volatility Index (VIX) tends to increase during uncertain times, and a surge of mixed data could lead to sharp price changes. We can prepare for this by exploring long straddles or strangles on major indices like the S&P 500, which will benefit from large price movements in either direction. With the S&P/TSX Composite up nearly 25% since January, now is a smart time to safeguard those gains. History shows that even in strong bull markets, pullbacks are common; for example, the S&P 500 has seen average yearly drops of about 14% over the last 40 years. Buying protective put options on index ETFs like XIU in Canada or SPY in the U.S. can provide valuable insurance against potential market declines. The surprising strength of the Canadian labor market, with 66,600 new jobs in October, may lead the Bank of Canada to set different policies compared to the Federal Reserve. This situation could create opportunities in the currency markets, particularly with USD/CAD futures or options. If the Fed has to pause its actions due to mixed U.S. data, while the BoC remains firm, the Canadian dollar could strengthen. It’s important to remember that the resolution in U.S. politics is temporary, as government funding only extends until January 30, 2026. This creates another potential market disruption in just a couple of months. Investors should manage any short-volatility positions carefully, as we expect volatility to rise as this deadline approaches. The delayed U.S. labor reports are crucial since the Federal Reserve has linked its policy decisions to employment data. Surprising or incomplete numbers could greatly change expectations for the Fed’s December meeting, influencing everything from interest rate futures to growth stock valuations. We need to monitor these data releases and any Fed communications closely to inform our trading strategies. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now