The S&P 500 had a tough time gaining more ground and fell below an important support level before bouncing back by the end of the day. This comeback was impressive considering the cautious mood in the market. The index is still moving within a limited range, hinting that we might see more decisive closing activity soon. Any early weakness is expected to be temporary, with a rotation among sectors likely.

Trade Tensions Impacting Markets

New trade tensions between the US and China are affecting different markets. President Trump stated there would be no further talks with China’s Xi Jinping. As a result, gold prices jumped to about $4,020, highlighting its position as a safe asset. The US Dollar faced some selling pressure due to negative trade news. Bitcoin is trading above a support range of $120,000 to $121,000, while other cryptocurrencies like Ethereum and Ripple are close to important support levels. Tariffs continue to be a key element of US foreign policy, acting as a major source of public funding. The US government recently reaffirmed its commitment to tariffs. Litecoin showed a positive trend, trading around $130, with gains for two consecutive days despite overall market volatility. The S&P 500 is having difficulty finding its direction after today’s options expiration. The market appears to be coiling within a tight range, with the CBOE Volatility Index (VIX) remaining above 18, indicating ongoing uncertainty. In this environment, selling volatility using neutral strategies like iron condors could be a smart move as long as the index stays indecisive. We think the market’s current uncertainty comes from the last inflation report, which showed core CPI at an annual rate of 3.2%. This is a bit too high for the Federal Reserve to make a clear policy change. This situation feels similar to the indecision we saw back in 2023, where every piece of data led to sharp but fleeting reactions. For now, this means any breakout triggered by weak economic data might not last, so caution with directional bets is wise.

Shifting Market Leadership

The focus is now shifting to sector rotations, and we believe mega-cap tech stocks are unlikely to lead given their current valuations and recent antitrust discussions in Washington. In contrast, the industrial and energy sectors are showing more strength, helped by the trend of onshoring and global supply issues that have kept WTI crude oil prices above $85 per barrel for most of the year. We are considering call spreads on industrial ETFs to position ourselves for a possible change in market leadership. The effects of the Trump-era trade wars are resurfacing, but now the spotlight is on stalled negotiations regarding access to critical minerals with a group of South American countries. We have seen how such geopolitical tensions can suddenly lead to a flight to safety, similar to what occurred in 2018-2019. Therefore, holding some protective puts on the broader market or having exposure to gold, which is consolidating near $2,700 an ounce, is a smart hedge for the upcoming weeks. Create your live VT Markets account and start trading now.

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