US stock indices saw significant gains recently. The Russell 2000 led the charge with a 3.86% rise, its largest jump since April 9. The Dow Jones Industrial Average increased by 846.24 points, or 1.89%, marking its highest close since May 12. The S&P 500 gained 96.74 points, or 1.52%, the biggest jump since May 27. The NASDAQ also saw a 1.88% increase, its largest one-day gain since August 4. Sector performance within the S&P 500 varied. The Consumer Discretionary sector experienced the most significant gain at 3.19%, while Consumer Staples fell by 0.35%. Energy increased by 1.99%, Communication Services rose by 1.87%, and Materials improved by 1.70%. Financials, Industrials, and Real Estate each climbed over 1.60%, while Information Technology went up by 1.32%. Health Care rose 0.82%, and Utilities increased by 0.53%.

Weekly Performance Highlights

This week, the NASDAQ’s gains couldn’t fully offset previous declines, but the S&P and Dow closed positively. The Russell 2000 was the standout performer, rising by 3.298%. The Dow increased by 1.53%, and the S&P saw a 0.27% uptick, while the NASDAQ dropped by 0.58%. The market’s reaction to the Fed’s comments indicates a shift toward less aggressive monetary policy, which we’ve been expecting. This has created a strong risk-on sentiment, pushing the Dow to a new record. We should prepare for continued bullish momentum, as concerns about further rate hikes seem to be easing. Implied volatility is expected to decrease in the coming weeks, despite the rally. The CBOE Volatility Index (VIX) fell over 15% yesterday, closing below 18 as event risk diminished, making it cheaper to buy options. This environment is favorable for purchasing calls or using bull call spreads on major indices to capture upside potential with defined risk.

Russell 2000 Surge Signals Opportunity

The rise in the Russell 2000 is significant, as small-cap stocks are very sensitive to the domestic economic outlook and borrowing costs. The July 2025 CPI report showed inflation cooling to a 2.8% annual rate, providing a great opportunity for these companies to excel. We recommend increasing exposure to the IWM (Russell 2000 ETF) through options. We are seeing a classic shift from safe stocks to growth, with Consumer Discretionary stocks climbing while defensive Consumer Staples declined. This trend supports strategies that take advantage of the shift, such as selling put credit spreads on strong consumer discretionary stocks. This behavior aligns with market trends observed during earlier easing cycles, like the one in late 2023. While the rally was strong, it’s essential to note that the NASDAQ still ended the week lower, indicating some caution remains in the tech sector. This suggests the rally is more broad-based rather than solely focused on technology for now. Therefore, derivative strategies should emphasize the S&P 500 and Russell 2000 rather than focusing exclusively on the NASDAQ 100. Create your live VT Markets account and start trading now.

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