The Dow Jones Industrial Average started the week close to the 47,000 mark, gaining around 370 points. Equity markets had seen a dip as the AI technology boom paused, sparking hopes for an end to the US government funding shutdown. As the market awaited news on fixing the federal funding gap, AI tech leaders regained attention. The temporary funding bill only keeps the government running until January, hinting at possible political turmoil ahead.

Consumer Confidence Records

Consumer confidence has dropped to record lows during the longest US government shutdown. With no new inflation and employment data available, investors are increasingly relying on public datasets, adding to market instability. This week was anticipated to deliver the US Consumer Price Index (CPI) and Producer Price Index (PPI) data. However, there’s still a chance the US House will pass a funding measure in time to provide updated statistics before the Federal Reserve’s rate decision on December 10. Nvidia, founded by semiconductor engineers in 1993, is a key player in GPUs and AI technology. They recently launched the H100 data center GPU, which provides six times faster network speeds, essential for AI. Caution remains in the market as investors keep an eye on government funding and economic updates.

Market Volatility

The ongoing government shutdown and the absence of new economic data have created a perfect storm for market volatility. This is evident in the CBOE Volatility Index (VIX), which has risen above 25—a level of concern not seen since the regional banking turmoil of 2023. Derivative traders might consider using strategies like straddles or strangles on broad market indices to capitalize on large price swings ahead of any news regarding funding. With consumer confidence at a record low, likely below the 50.0 mark from the inflation fears of mid-2022, the economic outlook is worsening. This situation makes purchasing protective put options on indices like the SPY or DIA a smart way to guard against potential losses. The impact of the shutdown makes a strong rally before a clear resolution and return of government data unlikely. In contrast to the weak overall market, the AI sector shows relative strength, with companies like Nvidia drawing investor interest. A pairs trade strategy could work well; it involves buying call options on a tech-focused ETF like the QQQ while also buying puts on an industrial-heavy index like the DIA. This approach bets on technology’s continued success, regardless of the general market’s direction. The Federal Reserve is effectively operating without crucial inflation and employment statistics, dampening hopes for a rate cut in December. Derivatives linked to the Fed Funds Rate now suggest that any easing may not happen until well into 2026. As a result, traders can expect ongoing pressure on bond prices, making options on treasury ETFs like the TLT worth considering while the Fed remains passive. Create your live VT Markets account and start trading now.

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