Dow Jones futures climbed 0.65% to almost 47,700 during European hours. Meanwhile, S&P 500 and Nasdaq 100 futures rose by 0.84% and 1.13%, respectively. This positive turn comes after reports that US and Chinese negotiators agreed on key disputes, paving the way for Presidents Donald Trump and Xi Jinping to finalize a trade deal.

Market Feelings and Federal Reserve Expectations

US Treasury Secretary Scott Bessent shared that President Trump’s earlier threat of 100% tariffs on Chinese goods is no longer active. China has committed to buying a large amount of soybeans and has paused its rare-earth export controls. The market is feeling more confident also due to a potential US Federal Reserve rate cut, with a 97% chance likely for October. Recent US inflation data has eased, and Wall Street closed on a high note last Friday, with major indices like the Dow Jones and Nasdaq 100 rising over 1%. Investors are now looking forward to earnings reports from big tech companies like Apple and Microsoft. The Dow Jones Industrial Average (DJIA) consists of 30 major US stocks and is weighted by stock price. Several factors influence DJIA, including company earnings, macroeconomic data, and interest rates set by the Federal Reserve. Traders can use options like ETFs, futures contracts, and mutual funds. With US index futures pointing significantly upward, we see a strong support for the market in the short term. The recent consensus from US-China trade talks has resolved a major uncertainty that has affected sentiment for years. This positive momentum is enhanced by the high likelihood of a Federal Reserve rate cut this week. Given this optimistic outlook, buying call options on the S&P 500 and Nasdaq 100 could be a wise move to leverage further gains. This situation feels reminiscent of late 2019 when progress on trade deals and Fed rate cuts helped the S&P 500 gain over 8% in the last quarter. However, we must keep in mind that implied volatility may be higher ahead of major tech earnings reports.

Risk Management and Profit Opportunities

Upcoming earnings from giants like Apple and Alphabet carry significant event risk that we need to handle with care. Historically, these large tech stocks can experience average price swings of over 5% after earnings, presenting both opportunities and threats. Using well-defined strategies like bull call spreads could allow us to profit from a continued rise while limiting losses if a report disappoints. We should also expect the CBOE Volatility Index (VIX) to likely drop as uncertainties are resolved. With a 97% chance of a Fed cut already priced in, the actual announcement may lead to a decrease in volatility once it’s made official. Thus, shorting volatility through VIX futures or buying put options on volatility ETFs could be a smart secondary strategy. For those willing to take on more risk, going long on index futures like the E-mini S&P 500 (ES) offers a direct and leveraged way to engage. However, it’s crucial to remain cautious as we approach the planned Trump-Xi meeting on Thursday. We must recollect how quickly sentiment shifted during past trade talks between 2018 and 2020, where a single headline could wipe out a week’s worth of gains. Create your live VT Markets account and start trading now.

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