Initial jobless claims in the US rose to 263,000 last week, exceeding the expected 235,000. This increase changed expectations for the Federal Reserve and drove US stock markets to new heights. The rise in claims was mainly due to Texas, where claims jumped from 16,604 to 31,908, accounting for over half of the unexpected increase. This sharp rise in Texas is likely a temporary situation, marking the highest level since the pandemic.

Considering Seasonal Adjustments

When adjusting for seasonal changes, the fluctuations are even clearer. Jobless claims might drop next week, but this data will come out after the FOMC decision. The market reacted strongly to the rise in jobless claims to 263K. The S&P 500 set a new record while interest rate markets adjusted their views on a more lenient Federal Reserve. This reaction stemmed from the assumption of a weakening job market. However, we believe this assumption is not entirely accurate. Over half of the rise was due to that single surge in Texas. That state’s claims hit the highest level since early 2020, likely caused by one-off layoffs rather than a widespread economic slowdown. If we exclude this outlier, the national trend is closer to the steady 220-240K range we have seen for most of 2025. As a result, implied volatility has decreased, with the VIX index dropping below 14. This makes options more affordable, presenting an opportunity to protect against a market that might be misreading the data. We suggest buying puts on major indices or call options on the VIX, as this could provide useful protection in the weeks ahead.

The Federal Reserve’s Upcoming Decision

The Federal Reserve will view this increased claims number shortly before their decision next week. This might lead them to issue a more cautious statement, even if they believe the data is not entirely reliable. The real opportunity may come after their meeting, as we expect next week’s claims data to drop significantly, prompting the market to quickly reconsider its dovish expectations. We have seen similar data distortions after regional events in the late 2010s, which led to temporary but sharp market corrections once the data stabilized. A good strategy might be to position for a pullback when the market realizes the labor market isn’t as weak as this report suggests. It seems wise to scale back on initial strength as we await clearer data. Create your live VT Markets account and start trading now.

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