US GDP growth eased to 1.5% q/q AR in Q2, while private domestic final purchases accelerated to 3.9%, pointing to stronger underlying demand than the headline figure suggests. The gap between the two measures indicates that momentum in core private-sector activity picked up even as overall output growth slowed.
AI-related activity continues to account for a large share of GDP, yet Q2 growth was described as firm beyond AI-linked sectors as well. That breadth of expansion implies the economy’s strength is not confined to AI, and it also suggests monetary policy may not be highly restrictive.
Interest Rate Cut Expectations And Positioning
We believe derivative traders need to quickly reassess their expectations for interest rate cuts in the coming weeks. With underlying US private demand surging at 3.9% in the second quarter of 2026, the economy is proving far more resilient than the headline GDP growth of 1.5% suggests. This means the Federal Reserve has less pressure to lower benchmark rates, which currently sit in the 4.75% to 5.00% range.
We recommend adjusting positions in Secured Overnight Financing Rate (SOFR) futures, which have likely overpriced the pace of upcoming rate cuts. Historical shifts show that when consumer spending holds up, the Fed prefers to keep borrowing costs steady to prevent inflation from creeping back up. Selling short-term interest rate options that bet on aggressive easing before the end of the year seems like a prudent move.
Equity Options Strategy Amid Broadening Strength
In the equity options market, we should pivot away from heavy concentration in artificial intelligence and tech-only plays. Because economic strength is now spreading to non-AI sectors, implied volatility in broader market index options represents an attractive entry point. Traders should consider buying call options on equal-weighted indices or cyclical sectors, which are poised to benefit from this healthier, broad-based momentum.
