The S&P 500 opened at a record high before stabilizing and finished the day with a 0.5% gain. The Nasdaq Composite and the Dow Jones Industrial Average (DJIA) also hit record highs, closing with increases of 1.0% and 0.3%, respectively. In noteworthy performances, the Russell 2000 jumped by 2.4%, surpassing its 2024 high and approaching its all-time high from 2021. Meanwhile, the Toronto TSX Composite Index also rose by 0.5%.

Large Cap Exhaustion

Although the S&P 500 reached a record, it has been moving sideways, indicating signs of exhaustion among large-cap stocks. The CBOE Volatility Index (VIX) shows this calmness, closing at 11.8, a level we haven’t held since before the 2024 election cycle. This low volatility presents a chance to sell options, using strategies like iron condors or covered calls on existing stocks to earn income while momentum stalls. The big rally in the Russell 2000 is significant, hinting at a shift towards smaller, domestically-focused companies. Recent data reveals that weekly investments in the IWM small-cap ETF hit their highest level in 2025, exceeding $4 billion last week. Derivative traders might consider buying call spreads on the IWM to capture potential gains while managing risk. We are now testing the Russell 2000’s all-time high from November 2021, a level that has acted as strong resistance for years. A decisive move above this point could signal further growth for the broader market, driven by more than just a few large-cap stocks. Historically, such broad rallies are more sustainable than those led by a small number of stocks.

Market Catalysts

This shift is gaining momentum thanks to how the market is interpreting recent economic data and signals from the Federal Reserve. After last week’s inflation report came in a bit lower than expected, Fed funds futures are now suggesting a 70% chance of a rate cut by the end of the year. Lower borrowing costs could serve as a strong catalyst for smaller companies, which are more sensitive to interest rates. Create your live VT Markets account and start trading now.

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The Bank of Japan is expected to keep interest rates steady today. Even though Japan’s August Consumer Price Index (CPI), including Tokyo’s inflation data, shows levels above the Bank’s 2% target, no changes in interest rates are expected. Tokyo’s CPI for August 2025 is 2.6% compared to last year, which aligns with forecasts. According to a Nikkei report and a poll, the Bank of Japan plans to keep its key interest rate at 0.50% during the September meeting. The announcement will likely occur between 0230 and 0330 GMT (which is 2230 to 2330 US Eastern time). Governor Ueda will hold a press conference at 0630 GMT (or 0230 US Eastern time).

Economic Calendar in Asia

The economic calendar for Asia on 19 September 2025 lists the following events. The data comes from the investingLive economic calendar, with times in GMT and previous results shown in the last column. The column next to it displays the expected median figures where applicable. With Tokyo’s inflation at 2.6%, price pressures remain above the Bank of Japan’s 2% goal. The central bank is expected to keep its key interest rate at 0.50% in tomorrow’s decision, signaling that the weak yen policy will likely continue. As a result, we should think about strategies that benefit from a falling yen, such as purchasing USD/JPY call options. This scenario is similar to what we observed after the BOJ cautiously ended negative interest rates in March 2024, which did not prevent the yen’s decline. Recent data shows that Japan’s real wages have fallen for 28 straight months, giving the BOJ justification to delay hikes and allowing USD/JPY to reach new highs. The predictability of the BOJ’s upcoming decision has reduced short-term currency volatility, making options more affordable. This might be a chance to buy long-term straddles on the USD/JPY, preparing for a potential policy surprise later in the year if inflation doesn’t decrease. We experienced significant volatility during past policy changes from 2022 to 2024, and the current calm may not last.

Impact on Japanese Equities

This monetary policy approach is likely to keep supporting Japanese equities. A weak yen increases the earnings of Japan’s large exporters, which has helped the Nikkei 225 rise over 8% since the beginning of the year. We could consider increasing long positions in Nikkei futures or purchasing call options to take advantage of this trend. The main risk in the coming weeks isn’t necessarily the BOJ’s decision, but any changes in Governor Ueda’s comments during the press conference. Nationwide core inflation has been above the 2% target for more than two years. Any indication that the bank’s patience is wearing thin could lead to a swift change in the yen’s value and impact equity markets. Create your live VT Markets account and start trading now.

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Trump talked about the US-UK trade deal, noting that the UK wants to make some “adjustments.” He mentioned this on Fox News. He also discussed sanctions, saying, “I don’t mind sanctions,” in reference to Russia.

Uncertainty for the British Pound

The UK’s desire for “adjustments” to the trade deal creates uncertainty for the British pound. We can expect more fluctuations in the GBP/USD currency pair in the coming weeks. Buying put options on the pound could be a wise move to protect against potential losses if negotiations stall. This news arrives during a tricky time for the UK economy, which is showing signs of slowing down. Last week, the Office for National Statistics reported that the UK GDP only grew by 0.1% in the second quarter of 2025. Any disruption to a key trade deal could worsen the situation. The pound has already dropped from a high of 1.28 to about 1.22 against the dollar this year, and this news could push it even lower. On a separate note, Trump’s casual mention of sanctions against Russia is raising alarms in energy markets. This talk hints at a possible increase in economic pressure, which could affect oil and gas supply chains. It might be wise to purchase call options on Brent crude futures, as new sanctions could disrupt supply and raise prices.

Geopolitical Risk Premium

We remember when Brent crude prices soared past $120 a barrel in 2022 during the initial wave of sanctions, which created big opportunities for those ready for it. Prices are now around $85 per barrel, and volatility in energy options is low, making calls a cost-effective way to prepare for another potential price spike. Just these comments could add a geopolitical risk premium to oil prices. Together, these developments suggest a time of increased global uncertainty. A shift towards safer assets might benefit the US dollar, adding more pressure on the pound and other currencies. To safeguard our portfolios, it may be wise to buy protective puts on major indices like the S&P 500, as geopolitical tensions can often lead to a sell-off in risk assets. Create your live VT Markets account and start trading now.

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USD/JPY briefly dropped below a 10-week range but has bounced back, increasing by 90 pips to reach 147.87. This level is central to the trading range seen since July. The strength of the US dollar is partly due to the votes from the FOMC. Members Bowman and Waller chose not to support a proposed cut of 50 basis points. This cautious approach from the Fed aims to avoid drastic rate cuts that could trigger inflation and weaken confidence in the US dollar.

Impact On Gold Prices

The Fed’s current policy has affected gold. While gold prices hit record highs earlier this year, they have since seen a slight pullback. The recent rebound indicates that USD support might continue, which could lead to more gains. There are signs of economic strength in the US, bolstered by remarks from Chairman Powell and interpretations of recent non-farm payrolls as driven by immigration. Today’s initial jobless claims report also suggests potential stability in the job market. If US employment numbers stay strong, the USD may rise further. This could lead to the USD/JPY exchange rate testing the July 31 high of 151.00. The recent bounce in USD/JPY is a notable signal after the pair briefly dipped below its 10-week range yesterday. This failed dip indicates significant support, and with the price back at 147.87, the easiest path seems to be upward. For those trading derivatives, this might mean selling puts or starting bullish call spreads could be a smart move.

Federal Reserve’s Policy Outlook

The dollar’s strength is supported by the Federal Reserve’s apparent independence, which decreases the likelihood of major rate cuts. This is reflected in bond yields, with the 2-year Treasury note yield consistently staying above 4.5% this week, signaling that the market is discounting any upcoming deep cuts. This stable policy outlook makes holding long dollar positions against a low-yield currency like the yen more appealing. Evidence of US economic strength gives this trade more potential. For instance, the latest retail sales figures for August showed a modest increase of 0.3%, exceeding expectations for no growth, suggesting that consumer spending is sturdy. This strong data backs the Fed’s cautious stance and supports a stronger dollar. Given this context, it might be a good idea to buy call options on USD/JPY, targeting the July 31 high of 151.00. Options that expire in October or November would provide ample time for the pair to test that important resistance level. The recent failed drop near 146.00 now serves as a clear stop-loss level for this bullish outlook. However, we should remember historical events as we approach the 150-152 zone. Japanese authorities directly intervened to strengthen the yen when the dollar hit these levels in late 2022 and issued strong warnings throughout 2024. Therefore, traders should be ready to take profits on long positions as we get closer to those highs or use option strategies to guard against a sudden reversal. Create your live VT Markets account and start trading now.

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Caterpillar leads the way in making construction and mining equipment, like bulldozers and excavators. Spending on such machinery shows if companies are planning to grow in the mining and construction industries.

Caterpillar’s Global Economic Impact

Caterpillar’s stock prices indicate that the global economy is improving, partly due to government responses to trade issues. Operating in 190 countries, Caterpillar’s results are especially notable in China, where stronger sales align with a booming Chinese stock market this year. Sales growth in China signals that Beijing’s economic policies are working. Caterpillar is also expected to benefit from strong markets in the US, where investments in infrastructure remain high due to tax policies that encourage business spending. Lower interest rates are likely to help revive the slower housing construction sector. The rise in Caterpillar’s stock points to a positive economic outlook for the broader stock market. This trend may extend beyond just technology stocks, as seen in indices like the Russell 2000, suggesting that many sectors will reap the benefits. Given this positive outlook, it may be a good idea to consider buying Caterpillar stock directly. Purchasing call options that expire in October or November 2025 could take advantage of the anticipated rise in share prices linked to improving global growth signals.

Investment Insights for Broader Market Rally

This perspective is supported by recent evidence that China’s stimulus efforts are effective. For instance, China’s Caixin Manufacturing PMI for August 2025 reported at 51.8, marking three months of growth. Therefore, we might also think about call options on industrial sector ETFs like XLI to gain a wider exposure to this trend. In the US, ongoing infrastructure spending creates a strong base for growth. Since the Infrastructure Investment and Jobs Act was passed in 2021, funding has consistently been allocated, promoting capital spending. Caterpillar’s dealer statistics for the three months ending in August 2025 show a 6% year-over-year increase in machine sales in North America. The strength of a company like Caterpillar indicates that the market rally is extending beyond tech stocks. In the last month, the Russell 2000 index has outperformed the Nasdaq 100 by nearly 4%, demonstrating a shift towards cyclical and smaller companies. This suggests that considering bullish positions—like buying calls on the IWM ETF, which tracks the Russell 2000—could be wise. We’re also starting to see positive changes in the housing sector, which is sensitive to interest rates. Housing starts unexpectedly rose by 2.1% in August 2025, marking the first increase in four months. This suggests that stable borrowing costs are finally boosting activity. Selling cash-secured puts on homebuilder ETFs might be a way to express cautious optimism, indicating that this struggling sector has reached its low point. Create your live VT Markets account and start trading now.

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Insights from the 10-Year TIPS Auction

The U.S. recently reopened 9-year, 10-month Treasury Inflation-Protected Securities (TIPS) and sold them at a yield of 1.734% plus inflation. This yield is lower than the previous auction’s yield of 1.985%. There was a significant tail of 4.6 basis points due to recent trends in the TIPS market. The bid-to-cover ratio was 2.020x, which is less than the average of 2.36x from the last six auctions. The auction highlighted some immediate weakness, shown by the large 4.6 basis point tail. The low bid-to-cover ratio of 2.02x, compared to the recent average of 2.36x, indicates buyers are hesitant at these levels. This suggests the market may have gotten ahead of itself after the recent rally. We should pay attention to the Federal Reserve’s likely actions next, as the market is now expecting a high chance of a rate cut before the end of the year. The August jobs report showed payroll growth slowing to just 98,000, and last week’s CPI figure confirmed core inflation has dropped to 3.1%, its lowest since 2023. This data supports the idea that the Fed will soon change direction, which could lower real yields significantly. For us, this signals an opportunity to make trades that benefit from falling real yields in the coming weeks. Buying call options on interest rate futures or a TIPS-focused ETF can provide a way to profit while managing risks associated with a dovish shift from the central bank.

Monitoring Breakeven Inflation Rate

It’s important to keep an eye on the breakeven inflation rate, which is currently about 2.4% for the 10-year. If the Fed cuts rates due to slowing growth, inflation expectations might decline, creating mixed signals for TIPS. The recent weak auction data provides a chance to enter the market before the easing cycle is fully priced in. This situation resembles late 2018, when the market anticipated the end of the Fed’s rate hikes before it became clear. Back then, being invested in duration trades proved very rewarding. The current scenario, showing weakening data after a period of high rates, suggests a similar opportunity is at hand. Create your live VT Markets account and start trading now.

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David Kostin, a prominent figure in financial media, is retiring from Goldman Sachs. He made headlines last year by predicting 3% annual returns for the S&P 500 over the next decade, which translates to only 1% in real terms. So far, this prediction has faced challenges, despite the S&P 500 rising nearly 13% this year. Achieving the last decade’s average of 13% returns may be tough due to high valuations and de-globalization.

Ben Snider Appointed New Chief

Ben Snider has been named the new Chief US Equity Strategist at Goldman Sachs. Despite a long-term bearish outlook, the market continues to climb, with the S&P 500 approaching 5,700 by 2025, reflecting a 13% gain. This rally occurs even with ongoing concerns about high valuations and slowing global growth. The S&P 500’s forward price-to-earnings ratio is currently at 22, much higher than the historical average of 17. As the market rises, the VIX is around a low of 14, indicating a strong sense of complacency among investors. Historically, long periods of low volatility often lead to market shocks, making it a good time to consider buying inexpensive protection. We suggest purchasing out-of-the-money puts on major indices like the SPX or QQQ for October expiration as a smart hedge against sudden drops.

Federal Reserve Holds Rates Steady

Adding to the uncertainty, the Federal Reserve decided to keep rates steady yesterday while signaling a more hawkish outlook. This comes after the latest CPI report showed a slight increase in inflation to 3.3%. This development challenges the notion of imminent rate cuts and may limit the equity market’s recent gains. Traders should monitor the Fed fund futures market, which has already removed the possibility of a 2025 rate cut following the announcement. Even if the market doesn’t decline sharply, the combination of high valuations and a cautious Fed may restrict further gains in the short term. This suggests a range-bound market, where strategies like selling covered calls on existing long positions can generate income. Selling call spreads is another approach we are using to benefit from potential sideways movement, particularly on certain tech stocks before Q3 earnings. Create your live VT Markets account and start trading now.

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The US 30-year fixed mortgage rate has dropped to 6.26% for the week ending September 18th. This is down from last week’s 6.35%. This rate is the lowest since October 2024, according to Freddie Mac data.

Mortgage Rate Trends

The 30-year mortgage rate has fallen to 6.26%, which is its lowest level in nearly a year. This decrease is part of a larger shift in the interest rate landscape and seems to be gaining traction as we enter the last quarter of the year. The drop is tied to growing expectations that the Federal Reserve will start cutting rates in early 2026. Recent inflation data supports this outlook, with the August 2025 Consumer Price Index showing a low 2.8%, nearing the Fed’s target. Additionally, the job market is slowing, with only 150,000 jobs added last month, giving the central bank further reason to ease policies. For traders, this presents an opportunity in interest rate derivatives. The 10-year Treasury yield, an important factor for mortgage rates, has now fallen below 3.75% for the first time since early 2025. It’s wise to prepare for this downward trend using futures on 10-year Treasury notes. This environment is particularly beneficial for sectors of the stock market that are sensitive to interest rates. Call options on homebuilder ETFs are likely to perform well as lower borrowing costs boost housing demand. Similarly, we should consider call spreads on the Nasdaq 100, as technology and growth stocks often thrive when capital costs drop.

Market Volatility

Market volatility has been decreasing, with the VIX now below 15. This indicates that the market is growing more confident in the economic outlook and the Fed’s expected actions. Lower option prices make buying calls more attractive, and also encourage strategies like selling puts on strong companies that we expect to rise. Reflecting on market behavior after the Fed concluded its hiking cycle in 2023, we saw a sustained period of strength in growth assets. The current environment closely resembles that period, and we can expect this trend to guide market direction for the coming months. Create your live VT Markets account and start trading now.

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The European Commission is considering a new sanctions package to speed up the plan to stop importing Russian LNG. This change is moving the deadline up from 2027. The goal is to hurt Russia’s economy more quickly through these actions. While oil prices are dropping because Europe is still buying Russian oil, the reduction in Russian LNG exports might raise prices. This could help global LNG suppliers, especially in the US.

European Gas Futures Outlook

We might see supply concerns similar to those from the early 2020s. The EU’s push to phase out Russian LNG sooner is leading us to favor bullish positions on European gas futures, especially the front-month TTF contracts. Recent data shows that in the second quarter of 2025, Russia made up about 14% of the EU’s total gas imports, so any disruption will have an immediate impact. This situation is good for US LNG exporters, who can step in to meet Europe’s needs. We should think about buying call options for major companies like Cheniere Energy and Tellurian in the coming quarter. Their stock prices are already rising in pre-market trading, and an official announcement from the EU could boost this trend even more. It’s important to differentiate between the gas and oil markets. The report states that Europe is not targeting Russian crude, meaning oil supplies will continue to flow. This is why Brent crude futures have been steady, hovering around $82 a barrel, despite tensions in the Middle East. Therefore, we should be careful with any bullish oil trades based on this geopolitical issue.

Volatility in Energy Options

The uncertainty surrounding the EU’s plan will increase implied volatility in energy options. History shows that sentiment can change quickly based on news of sanctions, especially when we look back at the price swings of 2022. To prepare for this, we should consider buying straddles on gas contracts, anticipating a significant price movement once the EU makes its final decision. Create your live VT Markets account and start trading now.

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Trump is pushing Europe and India to stop buying Russian oil. He believes that if crude oil prices go down, Putin may be forced to end the conflict. It is hard to see the difference between global oil prices and those for Russia alone. Efforts to limit Russian oil prices have not worked because global and Russian prices are closely linked.

Impact On WTI Crude Prices

After Trump’s remarks, WTI crude prices dropped by about 20 cents. This change shows how sensitive oil markets are to political events and policy changes. Connecting crude oil prices to a potential end to the war creates more uncertainty in the market. Although WTI crude saw a slight dip, the reaction was small. This indicates that traders are not fully convinced of a clear outcome. Such uncertainty often leads to volatility rather than a new price trend in the short term. Traders are already expecting bigger price swings, with the oil volatility index (OVX) rising to around 35 in the last month. This is significantly above its normal range, showing that traders are seeking protection from rapid price changes. In this situation, strategies that benefit from volatility—like buying straddles or strangles—are worth considering instead of just betting on price direction.

Supply Versus Geopolitical Risk

There is a slight chance that a peace deal could lessen the geopolitical risk premium on oil, which could lead to a sharp price drop. Russia’s federal budget for 2025 relies heavily on oil revenues and needs Brent prices above $75 per barrel to avoid deficits. This makes buying some inexpensive, out-of-the-money put options a smart way to protect against a sudden positive resolution to the conflict. However, supply pressures remain the main focus for now. Global crude oil inventories are about 5% below their five-year average, leaving little room for disruptions. Ongoing efforts to reduce Russian oil exports could easily trigger a price spike, making call options a solid strategy too. We saw a similar trend in 2022 and 2023, where geopolitical news caused large price swings before a clear trend appeared. The key takeaway is that such discussions create a fluctuating, news-driven environment. The best strategy for traders is to position themselves for the movement itself rather than trying to predict which way prices will go. Create your live VT Markets account and start trading now.

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