US stock indices are dropping after a disappointing jobs report, concerns about tariffs, weak Amazon earnings, and worries about inflation and recession. All major indices fell more than 1%, with the NASDAQ sliding by 1.5%. The Dow industrial average fell by 574 points to 43,550, a decrease of 1.31%. The S&P index dropped by 85.97 points (1.36%), now at 625,322. The NASDAQ index decreased by 365 points (1.76%) to 20,755. The Russell 2000 fell by 41 points (1.86%), now at 2,170.55.

Yields Falling

Yields are declining, with the chance of a rate cut in September rising from 45% to 75% after the report. The 2-year yield is at 3.745%, down 20.6 basis points, while the 5-year yield is at 3.805%, down 15.4 basis points. Both the 10-year and 30-year yields also fell. In the commodities market, crude oil is priced at $68.98, down $0.28. Gold rose by 1.6% to $3,342. Bitcoin dropped by $320 to $115,408, while copper increased by 1.62% to $4.42. Amazon stocks fell by 6.27%, Meta by 2.22%, and Tesla by 5.21%, while Apple saw a small gain. Today’s market turmoil signals a need to strengthen our defenses against further stock market drops. The steep decline in stocks, especially in tech sectors sensitive to the economy, is a response to the weak jobs report, which showed only 50,000 jobs were added, far below the 180,000 expected. It may be wise to purchase put options on the NASDAQ 100 through the QQQ ETF, as high-growth companies like Nvidia and Tesla are underperforming. The bond market indicates a Federal Reserve rate cut is likely, with yields falling sharply. This signifies a search for safety and suggests that fears of a recession are now overshadowing earlier concerns about inflation. Traders might consider going long on U.S. Treasury futures or buying call options on bond ETFs like TLT to benefit from lowering rates.

Volatility Returns

Volatility is making a comeback, and we should treat it as a distinct asset class in the upcoming weeks. The CBOE Volatility Index (VIX) has surged more than 30% to above 25, a level we haven’t seen since the banking issues in spring 2024. Buying call options on the VIX or betting on big price changes in volatile stocks like Amazon could yield profits. In commodities, gold’s rise to over $3,300 an ounce marks a traditional move away from risk and the U.S. dollar. This trend may persist as long as the market anticipates rate cuts from the Fed, reminding us of late 2023. We can ride this wave by acquiring call options on gold miners or the GLD ETF. The significant 21% drop in copper yesterday— the largest single-day fall since the 2008 financial crisis— is a crucial economic alert. Although it’s rebounding today, the volatility highlights uncertainty regarding global industrial demand. We should remain cautious and limit aggressive bullish positions on industrial commodities until we gain more clarity about the economy. Be vigilant about the divide in technology stocks, where giants like Apple can rise while semiconductor and e-commerce companies struggle. This indicates a flight to quality within the sector, as investors seek safety in companies with solid finances and strong pricing power. We could capitalize on this divergence by setting up pairs trades, like going long on Apple options while buying puts on the semiconductor ETF (SMH). Create your live VT Markets account and start trading now.

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