Government Shutdown Delay

US senators have failed to pass spending proposals for the fourth time, leading to an ongoing federal government shutdown. This shutdown is causing delays in important economic reports, such as the Nonfarm Payrolls report for September. The ADP Employment Change and Job Openings reports indicate a weakening job market. Fed Governor Stephen Miran mentioned that the Federal Reserve has the option to cut rates and is waiting for data by the October FOMC meeting. Last week, major stock indices hit new highs, driven by gains in technology and semiconductor stocks after OpenAI sold shares worth $6.6 billion. The Dow Jones Industrial Average includes 30 highly traded US stocks and is price-weighted. Its movement relies heavily on earnings reports, macroeconomic data, and interest rates set by the Federal Reserve. Currently, the market anticipates a 95% chance of a Federal Reserve rate cut in October, making it a good time for bullish positions. Lower interest rates usually decrease borrowing costs for companies, making stocks more appealing compared to bonds. Traders should consider strategies that benefit from a rise in the major indices like the Dow Jones and S&P 500. Expectations for rate cuts are supported by a noticeable trend of decreasing inflation and a softening job market. The Core PCE, which is the Fed’s preferred inflation measure, has moved down from the higher levels of 2024 and is closer to the 2% target. Recent ADP jobs data showed an increase of only about 150,000 jobs, confirming the slowdown that began late last year.

Market Strategies and Considerations

For traders wanting to take advantage of upward trends, buying call options on broad market ETFs like the SPDR Dow Jones Industrial Average ETF (DIA) is a direct way to do so. This strategy offers leveraged exposure while limiting potential losses to the premium paid for the option. Choosing expirations in November or December would align with the anticipated rate cuts. The technology sector is showing strong performance, continuing the AI-driven rally we saw through 2024. With recent news about OpenAI, traders might find opportunities in call options on the tech-heavy Nasdaq 100 ETF (QQQ), targeting the market’s leading growth sectors. The ongoing government shutdown brings some uncertainty, likely causing short-term volatility. While the market currently sees the shutdown as a reason for the Fed to lower rates, a prolonged shutdown could unnervous investors, similar to the 35-day shutdown from 2018-2019. In this environment, selling out-of-the-money put spreads could be an appealing strategy, allowing traders to earn premium while betting on market stability. Even with a positive outlook, it’s essential to manage risks due to any unexpected negative news from the shutdown or the Fed. We recommend considering VIX call options or a few out-of-the-money put options on the S&P 500 as a cost-effective way to protect your portfolio against sudden market declines. Create your live VT Markets account and start trading now.

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