Major indices recovered from early losses to show mixed results after a week packed with data. Chinese authorities encouraged banks to cut back on US Treasury assets, causing yields to rise. Software stocks dropped due to concerns about AI affecting traditional business models. Meanwhile, gold and Bitcoin bounced back from recent declines, with markets looking ahead to upcoming job figures. The Dow Jones Industrial Average made a slight recovery after a 160-point drop in early trading. The S&P 500 increased by 0.4% to 6,961, and the Nasdaq Composite showed modest gains after a shaky start. US stock markets rebounded after initial declines, as focus shifted toward earnings reports and job data. Chinese regulators urged banks to minimize US Treasury holdings due to risks and volatility. Yields on 10-year Treasuries climbed to 4.25%, while 30-year yields rose to 4.88%. China, the third-largest holder of Treasuries, currently holds $682.6 billion, down from over $1.3 trillion in 2013. Analysts noted that Chinese banks’ Treasury holdings are small compared to the overall market. Software stocks faced declines amid fears about AI’s impact on traditional business models. Monday.com dropped 14% after reporting positive fourth-quarter results, but provided weak revenue guidance for 2026. Concerns about AI tools affecting demand for traditional software led to further selling. Intuit and Salesforce fell by over 2% as attention moved away from potentially vulnerable software companies. STMicroelectronics saw a surge due to its expanded partnership with Amazon Web Services, focusing on high-bandwidth connectivity and efficient power management. Despite this collaboration, Amazon shares decreased by 2.6% due to heavy concerns over AI investments. Nvidia rose by 3.3%, and Microsoft gained 1.5%. Director Kevin Hassett noted that upcoming job reports may show weaknesses in the labor market due to slowing population growth, not economic issues. He highlighted that smaller job figures might accompany high GDP growth, pointing to a shrinking population and rising productivity. His comments came before a revised January Nonfarm Payrolls report, initially scheduled for release on Friday but delayed due to a government shutdown. Gold and Bitcoin stabilized after a rocky week. Spot Gold increased by over 1.5%, surpassing $5,000 per ounce following a decline on Friday. Silver bounced back after its worst performance since 1980. Bitcoin, trading around $69,000, saw a 3% drop after previously falling from $83,000. The recovery of precious metals was aided by a weaker US Dollar, geopolitical tensions, and ongoing demand. The market remains jittery, likely to react to Wednesday’s job numbers. Given the weak December 2025 jobs report, buying volatility appears wise. This could involve purchasing VIX call options or setting up straddles on the SPY to capture a significant move in either direction. The news from Chinese regulators adds upward pressure on Treasury yields, opening up a trading opportunity. We should consider buying put options on long-term bond ETFs like TLT, expecting further declines in prices as yields rise. Historically, when China significantly reduced its Treasury holdings in the late 2010s, it caused noticeable shifts in the bond market. The clear difference in performance between software and semiconductor stocks suggests a pairs trade strategy. We could buy call options on AI enablers like Nvidia (NVDA), which continues to perform well, while also buying puts on software-as-a-service companies like Salesforce (CRM). This strategy capitalizes on growing fears that AI will disrupt traditional software business models. Recently, significant selloffs in gold have created a high-volatility environment we can trade. For example, the Cboe Gold ETF Volatility Index (GVZ), which we monitored through 2024 and 2025, likely surged, making options premiums rich. Selling out-of-the-money puts on an ETF like GLD could allow us to collect that premium, betting that the worst of the panic is over and that gold will stabilize above its recent lows.

here to set up a live account on VT Markets now