US stocks have seen ups and downs this week, but a positive trend is now forming. After a shaky start, the market is rising as the week comes to a close. Amazon is leading the way, with a 3.7% increase, pushing its shares close to a record high. Economic data appears balanced, showing numbers that could prompt rate cuts without sparking fears of a recession.

Bond Market Influence

In the bond market, yields rose initially but have since fallen due to weaker economic data. This shows that interest rates have a stronger impact than economic strength in a leveraged market. There are no significant barriers stopping the stock market from moving above 6500, despite the usual negative trends in September. The upcoming jobs report is crucial in the short term, though its accuracy may be uncertain. The market rally is fueled by economic data that’s weak enough to suggest more rate cuts but not weak enough to indicate a recession. This points to a good opportunity to buy call options on major indices like the SPX to benefit from the upward trend. The recent ISM Manufacturing PMI reading of 48.5 supports this outlook, indicating a slowdown without raising recession alarms. Falling bond yields are boosting the appeal of growth stocks, with Amazon leading the way to new highs. We should consider call options on the Nasdaq-100 ETF (QQQ) or top tech stocks to take advantage of this trend. A similar pattern emerged in 2023, when declining bond yields sparked a big rally in tech stocks.

Market Volatility Strategy

Tomorrow’s jobs report is the next significant event, but there’s doubt about the reliability of the numbers. With the VIX around 17, implied volatility is high, making it a good time to sell out-of-the-money put spreads. This strategy lets us earn premium while betting the market won’t experience a major drop after the report. Even with a positive outlook, we need to recognize that September has historically been weak for stocks. It has been the worst month for stock performance for over 50 years, with the S&P 500 often showing negative returns. Therefore, buying some inexpensive out-of-the-money puts on the SPY could serve as a smart hedge against possible seasonal drops or negative market surprises. Create your live VT Markets account and start trading now.

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