European stocks are starting the week positively. This is mirrored by US futures, where S&P 500 futures have risen 0.2% today.
On Friday, equities experienced uncertainty following a softer US jobs report. Late dip buying helped recover some losses, a trend that seems to be persisting as the new week begins.
Slight Rebound
We are seeing a slight rebound as the market digests last Friday’s news. The report showed non-farm payrolls at just 110,000, well below the expected 180,000, which has traders betting on a more lenient Federal Reserve. This has shifted the immediate focus from inflation fears to potential economic slowing.
This uncertainty is reflected in the VIX, which we’ve seen climb to around 19, even as stocks edge higher. This suggests traders are buying protection against a potential downturn while also being unwilling to miss out on a rally. Using options strategies like collars, which combine buying a protective put with selling a call option, could be a prudent way to navigate this indecisive environment.
All eyes will now turn to the inflation data due on September 17th. If the Consumer Price Index also shows a cooling trend, it could solidify bets that the Fed will hold rates at its next meeting. We are seeing increased activity in options expiring just after that date to play the potential price swing.
Looking Back To 2023
This situation reminds us of the market action in late 2023, when weaker economic data similarly fueled a strong equity rally into year-end. Traders who bought call options on the S&P 500 then saw significant gains. Many are positioning for a potential repeat, though they remain cautious of any surprises.
Beyond equities, the real shift is in interest rate futures. The probability of a Fed rate cut by early 2026, as priced by the futures market, has jumped from 40% to over 65% since last week’s report. This suggests that betting on lower rates for longer could be a profitable trade.
