Dow Jones futures fell 0.2% to near 46,800 in European hours on Tuesday. S&P 500 and Nasdaq 100 futures dropped 0.34% to near 6,620 and 0.45% to near 24,250.
Futures moved lower ahead of a deadline set by US President Donald Trump for Iran to reopen the Strait of Hormuz by 8:00 PM Eastern Time on Tuesday. Trump said he could strike Iranian power plants and bridges if demands are not met.
Strait Of Hormuz Deadline
Iran said it would respond to any US strikes on civilian infrastructure by stepping up attacks on energy assets in the Gulf. This raised concerns about energy supply disruptions.
In regular US trading on Monday, the Dow rose 0.36%, the S&P 500 gained 0.44%, and the Nasdaq 100 added 0.54%. Eight of the 11 S&P sectors finished higher, led by consumer discretionary, energy, and consumer staples.
Markets priced in the Federal Reserve holding the federal funds rate steady this month, with borrowing costs expected to stay unchanged through year-end. CME Group’s FedWatch Tool showed a 99.5% probability of no change at the April meeting.
Attention now turns to the FOMC meeting minutes due Wednesday and inflation data due Friday. Delta Air Lines earnings are also watched this week.
Volatility And Hedging Ideas
The current market caution is reminiscent of the tensions we saw back in 2025 surrounding the US-Iran deadline for the Strait of Hormuz. Today, we are seeing a similar dynamic with Brent crude futures pushing near $95 a barrel, up 12% over the past month, due to disruptions in key shipping lanes. This shows how geopolitical flare-ups continue to be a primary driver of energy price volatility.
With this renewed uncertainty, the CBOE Volatility Index (VIX) has climbed above 22, its highest level in six months. Derivative traders should consider buying protection against a potential market drop, such as purchasing put options on broad market indices. This is a classic hedging strategy for times when an external shock could rattle investor confidence.
Conversely, sustained high energy prices create direct opportunities within the energy sector itself. The Energy Select Sector SPDR Fund (XLE) has already outperformed the broader S&P 500 by over 8% year-to-date. We believe traders should look at buying call options on major oil and gas producers to capitalize on this trend.
Just as the 2025 event fueled inflation fears and a hawkish Federal Reserve, today’s energy surge is having the same effect. The most recent Consumer Price Index (CPI) report showed inflation holding stubbornly at 3.8%, keeping pressure on the Fed. Consequently, the probability of a Fed rate cut by September has fallen from over 70% at the start of the year to just 30% today, according to the CME FedWatch Tool.
Given this backdrop, trades that rely on falling interest rates are now much riskier. We saw last year how markets quickly abandoned bets on rate cuts when faced with an inflationary shock. Traders should therefore be cautious with positions in rate-sensitive sectors and could even consider strategies that benefit from interest rates remaining higher for longer.
