US equity markets continued their upward trend with notable gains in September. Daily figures showed the S&P 500 increased by 0.5%, the Nasdaq Composite rose by 0.7%, and the Dow Jones Industrial Average grew by 0.4%. However, the Russell 2000 saw a decline of 0.7%, while the Toronto Stock Exchange Composite advanced by 1.0%.
During the week, the S&P 500 climbed by 1.2%, and the Nasdaq Composite and Russell 2000 both experienced a rise of 2.2%. The Toronto Stock Exchange Composite also recorded an increase of 1.6%. These figures reflect positive movement in most indices.
Market Volatility and Opportunity
With this strong rally, we are seeing market volatility drop significantly. The VIX has fallen to near 13.5, a low not seen since early summer, making options contracts relatively inexpensive. This presents a good opportunity to buy downside protection, such as SPX puts, for a potential pullback in the coming weeks.
All focus is now on the Federal Reserve’s meeting next week. The robust August jobs report, which showed 195,000 jobs added, gives the central bank justification to maintain a hawkish stance against inflation. We see this as a major event risk, especially for options expiring next Friday.
The weakness in the Russell 2000 on Friday is a clear warning for us, even with its strong weekly performance. Smaller companies are more sensitive to credit conditions and economic slowdown fears, which seem to be resurfacing. A potential strategy is a pairs trade, using call options on the tech-heavy Nasdaq 100 against put options on the Russell 2000.
September Effect and Inflation Concerns
We must not forget the historical “September Effect,” as this month often brings increased market turbulence. Looking back at the sharp market dips during the Septembers of 2022 and 2023 from this 2025 perspective, the current market calm feels fragile. This suggests that even a minor negative catalyst could spark a significant repricing of risk.
The latest CPI report showed core inflation remains persistent at 3.1%, still a full point above the Fed’s target rate. This data point will likely force a more cautious tone from the Fed chairman, limiting the market’s immediate upside potential. Selling out-of-the-money call credit spreads could be a prudent way to generate income while defining risk.
