The Dow Jones Industrial Average fell below 48,000 on Monday, affected by rising 10-year Treasury yields. The S&P 500 dropped 0.5%, the Nasdaq 0.4%, and the Dow 0.6%. This decline comes ahead of expectations for a possible interest rate cut at the Federal Reserve’s meeting on December 10. Currently, the market estimates a 90% chance of a 25-basis-point rate cut. Attention is now on Fed Chair Jerome Powell and his plans beyond 2025, with experts recommending a cautious approach. If the Fed decides to keep rates steady, stock prices may drop sharply. Although the overall market was lackluster, tech stocks performed well, with Broadcom hitting new highs. Confluent and companies like Wave Life Sciences surged after good news. There is a strong focus on AI technology, as Nvidia and Palantir Technologies are expected to see significant revenue growth. Still, some worry that the excitement around AI could lead to a tech bubble. In global news, the Reserve Bank of Australia is likely to keep its Official Cash Rate at 3.6%. Markets are also waiting for decisions from Canada, Australia, and Switzerland, which are expected to maintain their rates. With the Federal Reserve set to announce its rate decision tomorrow, the key focus will be on future guidance for 2026. Since a 25-basis-point cut is over 90% priced in, it might be a good idea to buy volatility through VIX options. Any unexpected comments from Chair Powell could lead to sharp market movements, and increased volatility could be profitable no matter the direction. The market’s rise to the Dow 48,000 level feels fragile, especially with the 10-year Treasury yield climbing again. This suggests we should consider buying protective puts on major indices like the S&P 500. This strategy can serve as insurance against a “sell the news” reaction or an unexpectedly hawkish stance from the Fed regarding future inflation. We should be cautious about the excitement around AI stocks, reminiscent of the lead-up to the DotCom bubble in the late 1990s. With stocks like Nvidia skyrocketing over 230% in 2023 alone, it’s wise to hedge these investments. Selling covered calls on popular tech stocks can generate income while offering some protection against a potential pullback. The biotechnology sector shows strong momentum, especially with breakthroughs in obesity drugs. The market for these treatments could exceed $100 billion by the end of the decade, making call options on biotech ETFs an attractive trade. The significant stock jumps from companies with positive trial data highlight how sensitive this sector is to good news. As the Fed is expected to cut rates while the Reserve Bank of Australia and others hold steady, this could lead to a stronger U.S. dollar. This is a typical scenario for currency traders. Using options on currency ETFs may be a good strategy to bet on the dollar rising against a group of other currencies in the upcoming weeks.

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