Stocks fell as big tech companies struggled. The S&P 500 dropped 0.57% to close at 6,412, while the Nasdaq 100 lost 1.39%, ending at 23,385. In contrast, the Dow was nearly flat with a slight increase of 0.02%, and small-cap stocks fell 0.77%. Defensive sectors like staples, utilities, and healthcare stayed strong, even as questions arose about AI investment returns. In the foreign exchange market, safe haven currencies like the USD, CHF, and JPY gained value. The yen performed best, boosted by falling US yields. Meanwhile, high beta currencies such as the AUD, NZD, and CAD struggled. This risk-averse mood also affected commodities; WTI crude dropped by USD 0.93 to USD 61.77 per barrel, while Brent crude fell USD 0.81 to USD 65.79 per barrel.

The Bond Market Update

The bond market had a good session, with treasuries rallying in both Europe and the US, which helped drive yields down. The US 10-year yield was around 4.30%, as all eyes were on the upcoming Jackson Hole symposium. Gold and silver prices fell with the stronger US dollar. Given the cautious atmosphere, it might be wise to hedge or take bearish positions on tech stocks. The Nasdaq 100 dropped below 23,400, driven by major players like Nvidia, indicating that the sector is vulnerable after its forward P/E ratio exceeded 35—a level not seen since the downturn in 2022. We could consider buying put options on the QQQ ETF to guard against more losses in the coming weeks. With the Jackson Hole meeting coming up, we could see an increase in market volatility. Implied volatility on September options for the S&P 500 has already risen to 18%, and any hawkish surprise from the Fed could push it much higher, similar to reactions after Powell’s 2022 speech. Buying VIX call options or setting up straddles on the SPX might be smart moves to manage this event risk.

The US Dollar and Treasury Yields

The US dollar’s strength against high-beta currencies like the AUD and NZD looks likely to last. CFTC data from last week showed that speculative net-long positions on the dollar have risen for four consecutive weeks, indicating strong trader confidence. We can act on this by shorting AUD/USD futures or buying call options on the UUP dollar index ETF. Treasuries are also seeing strong demand, pushing the 10-year yield down to about 4.30%. This move toward safety may continue if equity weakness persists. We expect that if the S&P 500 tests the 6,400 level, there will be increased demand for bonds, making long positions in Treasury futures or call options on the TLT ETF appealing. Create your live VT Markets account and start trading now.

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