The Dow Jones Industrial Average rose about 220 points on Friday to near 49,665 after opening at 49,366. It followed a 669-point drop on Thursday, while the S&P 500 was slightly higher and the Nasdaq Composite was mixed, with all three still set for weekly losses and the S&P 500 on track for its worst week since November.
US CPI rose 0.2% month on month in January versus a 0.3% forecast, and 2.4% year on year versus 2.5%, down from 2.7% in December. Core CPI was 0.3% month on month and 2.5% year on year, and CME FedWatch put June cut odds at about 83%, up from below 50% earlier in the week.
Rate Cut Path Looks Clear
Money markets priced about 63 basis points of Federal Reserve cuts for 2026, or about a 50% chance of a third cut by December. A leadership change is due in May, with Kevin Warsh expected to replace Jerome Powell.
Applied Materials jumped about 12% after adjusted EPS of $2.38 on $7.01 billion revenue versus $2.20 and $6.87 billion, and it forecast over 20% growth in semiconductor equipment this year. Rivian rose more than 20% and guided 2026 deliveries of 62K to 67K, up 47% to 59% versus 2025, while Roku gained about 10% and guided 2026 revenue of $5.5 billion versus $5.34 billion.
Pinterest fell over 20% and guided Q1 revenue of $951 million to $971 million versus $981 million, and DraftKings dropped about 17% after guiding 2026 revenue of $6.5 billion to $6.9 billion versus $7.31 billion. The Dow’s 50-day EMA is 48,852 and 200-day EMA is 46,472, with stochastics at 73.67/76.23; resistance is 50,509 and support is 49,092.
With January’s inflation coming in at a cool 2.4%, we believe the Federal Reserve has a clear path to begin cutting rates. The surge in expectations for a June cut to 83% probability is a strong signal to position for a more accommodative monetary policy. We should consider buying call options on broad market indices like the SPDR S&P 500 ETF (SPY), targeting expiration dates in the third quarter to capitalize on the expected easing cycle.
This situation feels very similar to the pivot we saw back in late 2023, which sparked a significant market rally into 2024. History suggests that when the CME FedWatch tool shows such a decisive shift, it’s wise to move away from defensive positions. The upcoming leadership change at the Fed in May adds a wrinkle, but the soft inflation data will likely compel the new Chair to follow through on market expectations for cuts.
Trading The Stock Level Divergence
The market is showing a clear split, and we must trade this divergence. We should add to bullish positions in the semiconductor sector through call options on companies like Applied Materials, as they are direct beneficiaries of the AI infrastructure buildout. Data from last year showed global semiconductor sales grew by over 13% after a slump in 2024, and this trend appears to be accelerating into 2026.
Conversely, we see weakness in consumer-facing digital platforms, highlighted by the poor guidance from Pinterest and DraftKings. This presents an opportunity to buy put options on these types of ad-dependent and discretionary spending companies. Even if the Fed cuts rates, it may not immediately translate into stronger advertising budgets, creating a favorable setup for these bearish trades.
Given the recent volatility, with the Dow swinging nearly 700 points in a single day, we expect implied volatility to begin declining as the Fed’s path becomes clearer. We can capitalize on this by selling VIX call spreads or buying VIX put options. A drop in the market’s “fear gauge” would be a natural consequence of the reduced uncertainty around interest rates.
Using the technical levels provided, we can structure our trades with defined risk. Selling cash-secured puts with a strike price near the Dow’s support level around 49,000 could be an effective strategy to collect premium while expressing a bullish-to-neutral stance. A failure for the index to hold this level would be our signal to reassess our bullish exposure.
