The S&P 500 showed intraday support before falling near the close, while the Nasdaq held above its session lows. Tech remained a main destination after the late March bottom, even as market gains depended on a narrow set of shares and breadth was questioned.
Geopolitical news around Hormuz faded from headlines, while inflation concerns increased alongside a US economy that still showed no clear recession signal. Earnings remained strong, but price action suggested selective demand rather than broad buying.
Labour market data showed softer elements, including the birth-death model’s effect on the prior month’s headline figure, a lower participation rate, and slower hourly earnings growth. There were also declines in full-time employment and a rise in U6 unemployment, with weaker job conditions weighing on consumer sentiment.
After the Trump–Xi summit ended, yields and the US dollar continued to rise, increasing pressure on risk assets and reducing the relative appeal of equities versus Treasuries through the equity risk premium. Stocks cut early losses after the open, then weakened into the close, alongside precious metals.
Recent sector moves pointed to strength in AI and tech versus weaker financials and consumer discretionary shares. The moves were framed as broader than a single event reaction and not explained as a two-speed economy.
The market is showing a familiar pattern where the S&P 500’s strength is misleading, while the Nasdaq holds up better. We see this today, as the S&P 500 Equal Weight index has lagged the main index by over 4% this year, proving that a few tech giants are doing all the heavy lifting. Traders should consider buying call options on tech leaders while using put options on broader, weaker indices like the Russell 2000 to hedge.
Just as we observed back in 2025, the market is pricing in persistent inflation alongside a slowing but not collapsing US economy. With the latest April 2026 CPI data showing inflation remains sticky at 3.8% and first-quarter GDP growth revised down to 1.1%, conditions are ripe for volatility. This environment makes options on commodity ETFs an attractive hedge against inflation that continues to surprise to the upside.
The weaknesses we noted in the job market last year are becoming more pronounced, weighing on the consumer. The unemployment rate has now ticked up to 4.1%, and recent data shows a clear slowdown in the creation of full-time positions. This suggests puts on consumer discretionary ETFs could be profitable, as household spending power is being steadily eroded.
The continued rise in yields and the dollar remains the most important headwind for stocks, just as it was during the Trump-Xi talks. Today, the 10-year Treasury yield is holding firm above 4.7%, making risk-free government bonds more appealing and pressuring equity valuations. This dynamic suggests traders could use put options on bond ETFs like TLT, betting that rates may need to stay higher for longer.
We are still seeing a clear split between sectors, with AI and tech outperforming while financials and consumer stocks struggle. Year-to-date, the technology sector fund (XLK) has gained over 15%, while the financial sector (XLF) is nearly flat. This supports using options for pair trades, such as buying calls on semiconductor ETFs while buying puts on regional banking funds.
