US stocks opened higher today, fueled by positive feelings in the AI sector. The S&P 500 rose by 0.20%, the Dow Jones Industrial Average gained 0.45%, and the Nasdaq 100 increased by 0.17%. Investors are looking forward to consumer sentiment data while keeping an eye on AI developments. The ongoing US government shutdown, now in its tenth day, has delayed key economic reports. This affects how we evaluate the economy and what the Federal Reserve might do next. The Fed had cut rates by 25 basis points in September and hinted at more cuts ahead. However, the budget deadlock creates uncertainty about these decisions.

Insights Into Consumer Confidence

Markets are turning to the University of Michigan survey for insights on consumer confidence and inflation expectations. These findings are especially important since there’s no new economic data coming from the government. AI is still lifting market sentiment, with tech stocks seeing strong earnings, particularly Nvidia, which just reached an all-time high. Despite this, caution remains due to political gridlock and gaps in data, leading to market fluctuations. Attention shifts to the upcoming third-quarter earnings season, which includes major banks like JPMorgan and Citigroup reporting results next week, increasing anticipation in the market. With the government shutdown and no official economic data, we can expect higher market volatility in the coming weeks. This may lead investors to buy options on volatility indices like the VIX or use straddles on the S&P 500 to profit from significant price swings in either direction. Looking back at the 2018-2019 shutdown, the VIX surged nearly 80% during that time of uncertainty, providing a strong historical example for this strategy.

Maintaining Bullish Exposure in AI

Even with general caution in the market, the AI sector remains strong, and it’s wise to look for ways to keep a bullish stance there. With Nvidia hitting new highs, we can use call options to capture further gains or implement bull call spreads to minimize initial costs. The remarkable growth of the AI chip market, which surged over 38% annually just a few years ago, highlights the strong long-term trend supporting these trades. As the third-quarter earnings season kicks off next week with the major banks, we should prepare for significant price fluctuations in individual stocks. For JPMorgan, a long straddle could be the way to go, allowing us to profit if the stock moves significantly, regardless of the direction. The options market is currently estimating a potential 4% move for the stock after its report, giving us a clear target for the trade to succeed. The delay in official inflation and employment reports makes it hard to predict the Federal Reserve’s next steps, making today’s University of Michigan consumer survey crucial. Any unexpected inflation numbers from that report could lead to an immediate reaction in interest rate futures. We saw something like this in late 2023 when alternative data drove market movements while traders waited for clear signals from the Fed. Create your live VT Markets account and start trading now.

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