The Dow Jones Industrial Average (DJIA) dropped sharply on Thursday, falling about 850 points. This drop came after President Trump approved a short-term funding plan to reopen the federal government, finally ending the longest government shutdown in U.S. history. Different sectors saw varying results. Healthcare and energy sectors gained some ground, even as the overall market declined. Meanwhile, the tech sector struggled, with Tesla falling 6.6% and Palantir dropping more than 5%.

Disney Shares Drop

Disney’s shares fell over 9% after it missed revenue expectations, though its earnings were better than anticipated. Overall, Disney made $94.4 billion in revenue for the fiscal year, marking a 3% increase from last year. With the government reopening, all eyes are on the upcoming economic data releases, although some reports may still be delayed due to the shutdown. The Nonfarm Payrolls report for September is expected soon and could influence the Federal Reserve’s decision on interest rates. Artificial intelligence (AI) aims to mimic human thinking in machines. Some uses of AI include generative AI, predictive analytics, and personalized content tools used by platforms like YouTube and Spotify. Nvidia and Palantir are key players in AI. Nvidia creates essential chips for AI, while Palantir specializes in big data analytics. Since late 2022, stocks related to AI have seen significant gains, although some experts warn that a bubble might form.

Market Volatility and Strategies

With the Dow’s steep drop yesterday and the government reopening, we should expect market volatility to remain high in the weeks ahead. The CBOE Volatility Index (VIX) will likely stay unpredictable as the market processes a barrage of delayed economic data. Traders can consider strategies that benefit from these price fluctuations, such as buying puts on broad market indices like the SPX to protect against further declines. The delayed September Nonfarm Payrolls report is a crucial upcoming event before the Fed’s December 10 meeting. With rate traders nearly split on whether a rate cut will happen, we can expect a significant market shift depending on this jobs number. Using options strategies like straddles or strangles on interest-rate-sensitive ETFs could be advantageous for this situation. The ongoing drop in the tech sector, especially in AI stocks, offers opportunities for bearish plays. We are witnessing a major shift from the excitement of 2023, a year when Nvidia (NVDA) stock soared about 240%. Given this change, buying puts or creating bear call spreads on the Nasdaq 100 ETF (QQQ) or stocks like Tesla (TSLA) could be a wise choice. Disney’s steep 9% decline after its earnings report shows weakness even in well-established large-cap stocks, indicating low consumer confidence. This sets a technical ceiling for the stock, making it suitable for selling out-of-the-money calls to earn premium. We observed this trend in late 2023 when slowing subscription growth affected several media companies, and it seems to be continuing. Overall, the market’s focus has shifted away from the growth-at-all-costs mindset that characterized 2023 and 2024. Earlier in 2023, the NASDAQ 100 traded at 25 times forward earnings, a valuation now being tested as traders move toward more defensive sectors. We should consider pair trades, such as going long on a healthcare or energy ETF while shorting a technology growth fund to take advantage of this shift. Create your live VT Markets account and start trading now.

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