US shares fell on Wednesday as hotter Producer Price Index (PPI) data arrived on the same day as the Federal Open Market Committee (FOMC) decision. The Dow dropped nearly 1% (over 450 points), the S&P 500 fell about 0.7%, and the Nasdaq Composite lost roughly 0.5%. The Bureau of Labor Statistics said PPI for final demand rose 0.7% month-on-month in February versus 0.3% expected, after 0.5% in January. Headline PPI rose to 3.4% year-on-year versus 2.9% forecast, while core PPI increased 0.5% versus 0.3% expected and the annual core rate climbed to 3.9% from 3.5%.

Fed Decision And Market Pricing

The Fed was expected to hold rates, with focus on the SEP and dot plot. In December, the median dot pointed to one 25-basis-point cut in 2026, while CME FedWatch showed only one cut priced in by year-end, most likely in December, with near-zero odds before September. Oil rose about 3% as WTI moved above $95 per barrel, up roughly 50% this year, and gold slipped below $5,000 per ounce. The US issued a 60-day Jones Act waiver covering oil, natural gas, fertiliser and coal. Caterpillar rose about 1% and Goldman Sachs gained about 1%, while Amgen, Sherwin-Williams and Procter & Gamble each fell around 2%. Nvidia edged up after a report that China approved sales of its H200 chips, alongside talk of a $1 trillion revenue opportunity through 2027. Looking back at the high inflation prints from February 2025, we can see they set the tone for the past year. That producer price surge, combined with the conflict in Iran, kept the Federal Reserve on hold for all of 2025 and into this first quarter. With the latest February 2026 Consumer Price Index still elevated at 3.1%, the market’s expectation for rate cuts remains pushed out.

Volatility And Trading Approaches

This sustained uncertainty means we should anticipate volatility to remain high for the next few weeks. The CBOE Volatility Index (VIX) has been averaging above 20, a significant shift from the calmer periods before last year’s energy shock. We can use this environment by considering long volatility strategies on the S&P 500, such as buying straddles ahead of upcoming inflation data releases. The geopolitical situation continues to support crude oil prices, with WTI futures for May delivery currently trading near $98 per barrel. Since the conflict escalated last year, we have seen prices consistently find support above the $90 mark. Therefore, buying call options on energy sector ETFs like the XLE offers a defined-risk way to profit from any further supply disruptions. The performance gap between sectors we saw emerging in early 2025 has only widened since. Energy and industrial stocks continue to outperform as they pass on higher costs, while consumer-facing companies struggle with squeezed margins. A pairs trade, going long energy futures while simultaneously buying puts on a consumer staples ETF like XLP, could hedge against broad market downturns. Given the Fed’s rigid stance, derivatives tied to interest rates offer a direct play on monetary policy shifts. We see significant activity in options on Treasury bond ETFs, with traders positioning for the Fed to remain on hold longer than previously expected. Using Secured Overnight Financing Rate (SOFR) futures can also provide a hedge or speculative position on the short-end of the curve. Create your live VT Markets account and start trading now.

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