The Dow Jones Industrial Average (DJIA) hit a new high on Thursday as investors shifted from tech stocks to those tied to economic growth after the Federal Reserve cut interest rates. Visa played a key role in pushing the Dow higher, while the S&P 500 remained steady. However, the Nasdaq dropped due to declines in major tech stocks. Oracle’s disappointing earnings report and cautious spending forecast led to a 12% drop in its stock. This raised concerns about the profitability of AI investments, causing other AI stocks to fall too. Analysts lowered their price expectations amid uncertainty about Oracle’s future.

Market Changes

Lower interest rates helped cyclical and small-cap stocks. The Russell 2000 and the Dow reached record highs during the day. There was talk of a potential ‘Santa Claus rally,’ but challenges in 2025-2026 were also mentioned. After the holidays, jobless claims rose, but ongoing claims decreased. OpenAI launched its GPT-5.2 model to boost productivity, while Rivian is working on its AI chip to lessen its dependence on Nvidia. The DJIA reflects the health of 30 major companies in the US and is strongly influenced by the Federal Reserve’s interest rates, which affect corporate credit costs. Investors can trade the DJIA through ETFs, futures, options, and mutual funds. With the Federal Reserve’s latest rate cut of 25 basis points to 3.25%, the market is clearly changing. Money is moving out of high-growth tech stocks and into value stocks that typically perform better when the economy grows. This suggests that traders might prefer to invest in Dow-linked assets rather than the tech-heavy Nasdaq. Oracle’s surprising 12% drop in its stock is a warning for the entire AI sector, which had seen huge gains in 2025. The Technology Select Sector SPDR Fund (XLK) is still up over 40% this year, but this slip indicates that the sector can be sensitive to negative news. As a result, we should prepare for more volatility and consider options strategies like straddles on major AI stocks or buying puts on the Nasdaq 100.

Investment Opportunities

The shift towards economically sensitive stocks is backed by the Russell 2000 small-cap index reaching a new high along with the Dow. This week, the Dow Jones Industrial Average is up 2.5%, while the Nasdaq 100 has dropped 1.8%, showcasing a clear division. This market condition favors buying call options on cyclical sector ETFs, especially in financials and industrials. This performance gap creates a good opportunity for pairs trading in the upcoming weeks. We could buy futures contracts on the Dow while selling futures on the Nasdaq to take advantage of this trend. The increase in initial jobless claims to 250,000—its highest in three months—adds some complexity, but it hasn’t halted the move into value. While many are expecting a year-end ‘Santa Claus rally,’ concerns for 2026 are significant and shouldn’t be ignored. We should think about using the current strong market to purchase some protection for the new year. Buying longer-dated put options on the S&P 500 or Nasdaq 100 could be a smart way to guard against potential challenges. Create your live VT Markets account and start trading now.

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