The Federal Reserve has lowered interest rates by 25 basis points and announced plans to purchase $40 billion in Treasury Bills over the next 30 days. This decision resulted in US stocks experiencing their strongest post-Fed meeting reaction in nine months.<\/p>\n
Despite the Fed’s divided stance and uncertainty over future policies, stocks rose due to the positive market reaction to the Fed’s actions. The Fed’s growth forecast upgrade, a surprise liquidity injection through Treasury purchases, and the unchanged rate-cutting cycle further supported the stock market’s response.<\/p>\n
Additionally, the gold price surged significantly following the Fed’s meeting. The increase could be attributed to investor concerns about potential economic stagflation or gold’s alignment with risk assets, mirroring stock movements.<\/p>\n
US stock market gains were prominent in sectors like materials and industrials, while tech stocks underperformed. Oracle’s earnings report revealed weaker than expected revenue, causing a 10% drop in its share price despite strong contract growth and AI ambitions. The recent developments, including the Fed’s decisions and Oracle’s earnings, suggest a potential turning point for stocks. The S&P 500’s equal-weighted index has started to outperform its market cap-weighted counterpart, highlighting a shift away from big tech dominance.<\/p>\n
With the Federal Reserve cutting rates and injecting $40 billion into the market this month, we should expect volatility to decline in the coming weeks. The CBOE Volatility Index, or VIX, has already dropped below 14, a level we haven’t seen consistently since before the rate hikes began back in 2024. This environment is favorable for strategies that involve selling options premium, such as covered calls or credit spreads on broad market indexes.<\/p>\n
The Fed’s actions are putting significant pressure on the U.S. dollar and Treasury yields. The U.S. Dollar Index (DXY) has fallen sharply to near 102.50, while the 10-year Treasury yield has dipped towards 4.10%. Derivative traders could look at options on currency ETFs to bet on further dollar weakness, which benefits multinational corporations and commodity prices.<\/p>\n
We are seeing a clear rotation out of expensive AI-related technology stocks and into more economically sensitive cyclical names. The Russell 2000 index of small-cap stocks just hit a new record high, outperforming the tech-heavy Nasdaq 100 by over 2% this week alone. This suggests buying call options on cyclical sector ETFs like materials (XLB) and financials (XLF) could be a rewarding trade.<\/p>\n
The underperformance of market leaders following Oracle’s earnings is a warning sign for the AI theme. Even with massive contract growth, the market is punishing companies for high capital expenditures, a sentiment that could weigh on names like Nvidia. We can express this view by considering put spreads on specific big tech stocks or the Nasdaq 100 ETF (QQQ) as a hedge against a deeper correction in the sector.<\/p>\n
This situation feels very similar to what we saw in late 2019 when the Fed began “not-QE” to support money markets. That liquidity injection fueled a strong rally in stocks into early 2020. Given this historical precedent, selling out-of-the-money puts on the S&P 500 could be a strategy to capitalize on this new wave of liquidity from the central bank.<\/p>\n
Uncertainty remains high, however, as the Fed itself appears deeply divided and Fed Chair Powell’s term is set to end in May 2026. Market expectations, reflected in Fed funds futures, are still pricing in a slightly more aggressive cutting path than the Fed’s own projections suggest. This divergence could spark volatility around future inflation reports, making defined-risk options strategies more prudent than taking on unlimited risk.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Fed rate cut, Treasury purchases boost stocks; gold surges; tech lags; equal-weighted S&P outperforms.<\/p>\n","protected":false},"author":62,"featured_media":17023,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-36562","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/36562","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=36562"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/36562\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17023"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=36562"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=36562"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=36562"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}