US shares rose on Tuesday after Monday’s AI-led sell-off. The Dow gained about 425 points (0.85%) and moved back above 49,000. The S&P 500 added about 0.6%, and the Nasdaq rose about 0.9%. On Monday, the Dow fell 822 points. Investors worried that AI could disrupt software and consulting, and they also faced uncertainty about tariffs. US President Trump raised global tariffs to 15% under Section 122 of the Trade Act.

AI Led Rebound

AMD shares jumped about 8% after signing a multi-year deal with Meta. Under the deal, Meta plans to deploy up to 6 gigawatts of AMD Instinct GPUs in its AI data centres. Shipments of custom MI450-based GPUs are expected to start in the second half of 2026. AMD also issued Meta a performance-based warrant for up to 160 million AMD shares. The warrant vests as shipment milestones are met. Nvidia was mostly flat ahead of its quarterly earnings report on Wednesday. Home Depot rose about 3% after reporting fourth-quarter adjusted EPS of $2.72, above the $2.55 expected. Revenue came in at $38.2bn versus $38.09bn forecast. Comparable sales rose 0.4%, while analysts expected a 0.4% decline. Home Depot guided for fiscal 2026 sales growth of 2.5% to 4.5%. It expects comparable sales to range from flat to up 2%. It also guided for adjusted EPS to be flat to up 4%. The company raised its quarterly dividend to $2.33 per share. The Conference Board Consumer Confidence Index rose 2.2 points to 91.2 in February, above the 87.0 expected. January was revised up to 89.0 from 84.5, ahead of Trump’s State of the Union on Tuesday evening.

Volatility And Hedging

Monday’s sharp sell-off and Tuesday’s quick rebound show that volatility is driving markets right now. The VIX, a key fear gauge, jumped above 20 on Monday and then eased to around 18 today. That is still well above the year’s average of 14. In this kind of market, defined-risk option strategies can make sense. AI disruption and trade policy could keep causing large moves in both directions in the Dow and S&P 500. The AI infrastructure buildout is creating clear winners, and that is where attention should be. The AMD–Meta deal supports the idea of a major new capex cycle. Traders can use call options or bull call spreads on AMD to try to benefit from the momentum. With Nvidia earnings tomorrow, options are pricing in a move of more than 10%. That is common for Nvidia around earnings. This makes straddles expensive, but they can still pay off if the stock makes a very large move in either direction. By contrast, the rebound in software stocks may be weak and could offer a chance to take bearish positions. IBM had its worst day since the dot-com bust on Monday, and today’s 3% bounce may not last if Salesforce gives weak guidance tomorrow. Buying puts on a software-focused ETF, or on the most exposed stocks, could help protect against another drop in that sector. The consumer outlook is unclear, which makes retail and housing trades harder. Home Depot beat estimates, but it also repeated that housing remains “frozen,” a theme that has lasted since 2023. Mortgage rates are still above 6%. The dividend hike shows strength, but the mostly flat guidance suggests limited upside. That makes Home Depot less attractive for near-term bullish trades. Trade policy is still the biggest unknown. It may be wise to stay hedged ahead of tonight’s State of the Union address. The risk of new global tariffs brings back the sudden market drops seen in 2025 when similar rhetoric appeared. Holding some protective puts on broad indices like the SPY can be a reasonable way to insure against a negative policy surprise. Create your live VT Markets account and start trading now.

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