DJIA futures traded above 50,000 overnight and premarket on Thursday, after the cash index slipped about 0.1% on Wednesday. The S&P 500 and Nasdaq Composite closed at record levels on Wednesday.
The Asian and European sessions held a narrow rise, with a softer US Dollar and slightly lower crude. Treasury yields steadied after reaching new 2026 highs following April PPI data.
Headline PPI rose 1.4% month-on-month in April and 6% year-on-year, the fastest annual rise since December 2022. CPI came in at 3.8% year-on-year, the highest since May 2023.
April Retail Sales rose 0.5% month-on-month, after an upwardly revised 1.6% in March. The control group rose 0.5% versus 0.4% expected, and sales excluding autos rose 0.7% versus 0.6% expected; sales were up 4.9% year-on-year.
Initial Jobless Claims rose to 211,000 versus 205,000 expected, while continuing claims increased to 1.782 million. The four-week average was 203,750.
Fed speakers include Jeff Schmid (14:15 GMT), Beth Hammack (17:00), John Williams (21:45), and Michael Barr (23:00). CME FedWatch shows near-zero odds of a June 17 cut and none priced through year-end, with some forecasts shifting first cuts into 2027.
Friday data includes the Empire State index (7.5 expected vs 11 prior) and Industrial Production (0.3% expected vs -0.5% prior). Kevin Warsh is set to replace Jerome Powell as Fed Chair on Friday.
With the Dow Jones flirting with 50,000 but inflation running hot, we are seeing a significant pickup in demand for portfolio protection. The CBOE Volatility Index (VIX), often called the market’s “fear gauge,” has climbed to 17.2, reflecting rising uncertainty about the new Fed leadership. We believe traders should consider buying VIX call options or futures to hedge against a potential spike in volatility over the next few weeks.
The arrival of a more hawkish Fed Chair and persistent inflation strongly suggest the path of least resistance for Treasury yields is higher. We saw a similar dynamic back in 2022, when aggressive Fed tightening caused bond prices to plummet. To position for a repeat, traders are increasingly buying puts on bond ETFs like the iShares 20+ Year Treasury Bond ETF (TLT), betting that prices will fall as yields push toward new cycle highs.
Given that the broader market indexes are sitting at record highs, hedging long equity exposure seems prudent. We are seeing clients buy protective puts on the SPDR Dow Jones Industrial Average ETF (DIA) as it struggles to hold the 50,000 level. For a lower-cost alternative, traders can use put spreads, which limit potential gains but significantly reduce the upfront premium paid for the hedge.
The divergence between sectors is becoming more pronounced and offers clear trading opportunities. With interest rates expected to remain high, we anticipate continued weakness in rate-sensitive sectors like financials (XLF) and homebuilders. In contrast, the ongoing conflict in the Middle East has kept West Texas Intermediate crude oil prices firm around $95 a barrel, making call options on energy stocks and the Energy Select Sector SPDR Fund (XLE) an attractive tactical play.
The latest retail sales figures suggest the consumer is absorbing higher prices, but this may not be sustainable. While nominal sales are up, much of this is driven by inflation rather than increased purchasing volume, a trend we also saw through much of 2025. This hidden weakness makes consumer discretionary stocks vulnerable, and we are positioning cautiously by looking at puts on the Consumer Discretionary Select Sector SPDR Fund (XLY).
