The Dow Jones Industrial Average fell by 200 points on Monday, dipping below the 47,250 mark for the first time in over a week. This drop occurred even as other indexes rose, thanks to increases from the ‘Magnificent 7’. Amazon gained about 5% after investing $38 billion in OpenAI. Iren secured a $9.7 billion deal with Microsoft to improve its hardware. Nvidia also benefited from these AI deals, rising 3.7% as its technology was crucial to the new plans.

Continued Decline in Manufacturing

The Institute for Supply Management reported that the October Purchasing Managers Index fell to 48.7, down from September’s 49.1. This shows that the manufacturing sector continues to contract. While demand indicators improved slightly, they remain negative, signaling that businesses are struggling to grow. The Federal Reserve’s messages have become less predictable and strayed from former consensus-driven communications. Recent speeches, especially from Chair Jerome Powell, have shifted market expectations surrounding interest rate cuts. There is still uncertainty about possible rate changes. According to the CME’s FedWatch tool, 65% of traders are betting on a rate cut in December. The Dow’s decline and ISM’s reports highlight the current challenges in the market and the uncertainties around Fed policy.

Market Performance Differences

The market shows a clear divide: the Dow is faltering while tech giants like Amazon and Nvidia are thriving. The Nasdaq 100 has climbed over 35% year-to-date in 2025, whereas the Dow Jones has seen only a 6% gain. This performance gap suggests that technology-focused strategies, like buying call options on tech ETFs, could be beneficial, while buying puts on industrial index funds might also be wise. The latest manufacturing report, indicating a reading of 48.7, marks the eighth consecutive month of economic contraction, which is a serious warning. This ongoing weakness is similar to the 2015-2016 industrial recession, a time when cyclical stocks struggled. As such, it’s prudent to consider protective put options on sectors most affected by a slowdown, such as materials and transportation. The Federal Reserve’s lack of a clear message is creating significant uncertainty around the rate decision coming up on December 10th. This uncertainty is reflected in the VIX, the market’s key volatility index, which has risen back above 18 from its October lows close to 14. In this environment, buying straddles on the S&P 500 could be a good move, as this strategy gains from large price swings either way without needing to predict the Fed’s next step. While the market still expects a rate cut in December with a 65% likelihood, this probability has dropped from over 80% a few weeks ago. If the Fed unexpectedly holds rates steady, traders might pull back sharply, adjusting their expectations for a cut in January. Holding some short-term put options through the Fed meeting could be a smart way to hedge against such a negative surprise. Create your live VT Markets account and start trading now.

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