US equities began the week positively, with the S&P 500 increasing by 0.5 percent, the Dow Jones Industrial Average rising 0.3 percent, and the Nasdaq Composite gaining 0.6 percent. Large technology companies such as Apple and Meta contributed to these gains ahead of their earnings reports.
Political risk remained a concern as markets absorbed tariff threats from President Trump towards Canada, which were linked to a potential trade agreement with China. Issues in Washington concerning federal funding and immigration policy caused worries about a possible government shutdown.
Gold Reaches New High
Gold reached a new high above $5,100 per ounce, showing cautious sentiment due to political and fiscal risks. In the commodities sector, gold miners like Newmont saw substantial gains. Novo Nordisk shares rose with oral Wegovy boosting the obesity treatment market, while competitor Eli Lilly trailed behind.
Earnings season is entering a critical phase, with more than 90 S&P 500 companies reporting. About three-quarters have beaten earnings expectations, although revenue beats have moderated. Market participants await the Fed’s upcoming rate decision, with no changes expected but focused on guidance for potential rate cuts.
The Dow Jones Industrial Average, price-weighted and composed of 30 major US stocks, is impacted by corporate earnings, quarterly reports, and macroeconomic data. Dow Theory, developed by Charles Dow, identifies the primary stock market trends and has several trading methods like ETFs and options.
With markets balancing positive earnings against political jitters, we see a clear rise in implied volatility. The CBOE Volatility Index (VIX) has reflected this unease, recently climbing above 17 from lows near 13 earlier in the month. This environment suggests traders should consider strategies that profit from price swings, not just direction.
Protecting Portfolios Amidst Rising Volatility
The surge in gold to over $5,100 an ounce is a significant warning sign of investor fear, driven by tariff threats and potential government funding issues. To protect portfolios, buying put options on broad market ETFs like the SPY or QQQ offers a direct hedge against a potential downturn in the coming weeks. We saw a similar flight to safety during the budget negotiations in the fall of 2025, which rewarded those who were hedged.
Earnings season presents opportunities for volatility plays, especially with megacap tech reporting. While about 75% of companies have beaten earnings estimates, this is just below the five-year average of 77%, signaling that big upside surprises are becoming rarer. Therefore, using straddles on names like Apple or Meta could be effective, as it allows a trader to profit from a large price move in either direction following their announcements.
All eyes will be on the upcoming Federal Reserve announcement for guidance on rate cuts. Futures markets, according to the CME FedWatch Tool, are currently pricing a roughly 60% chance of the first quarter-point cut happening by the September 2026 meeting. Any language from the Fed that sounds more hesitant than expected could trigger a sell-off, making short-term puts a viable tactical trade.
Specific sector trends are also creating clear openings for derivative trades. The strength in gold makes call options on miners like Newmont attractive to ride the current momentum. In healthcare, the divergence between Novo Nordisk and Eli Lilly could be played with a pairs trade using options, such as buying calls on Novo while buying puts on Lilly to capitalize on their differing performance.
