Insights 
VT 
The Dow Jones Industrial Average (DJIA) briefly regained some lost ground, reaching the 46,800 level, as major indexes aim to restore their upward trend. Market participants remain largely undeterred by the ongoing US government shutdown, even as attempts to restart federal operations faced hurdles, causing some concern.
On Wednesday, the Dow fell back to around 46,600 amid cautious investor sentiment. The Federal Reserve’s recent meeting minutes revealed that several officials are more cautious, noting “downside risks” to employment. Despite this, the Fed’s GDP forecast through 2028 was adjusted upwards.
Interest Rate Expectations
Interest rate expectations shifted slightly lower after the Fed minutes were released. Current rate markets suggest over 92% likelihood of an interest rate cut on October 29, but the probability of a December cut is decreasing, with a third cut possibly pushed to January 2026.
Investors are now focusing on the upcoming University of Michigan Consumer Sentiment Index. The index is anticipated to slightly decrease to 54.2, with close attention on inflation expectations. The Fed’s dual mandate involves managing interest rates to ensure price stability and full employment.
In extreme scenarios, the Fed may use Quantitative Easing or Quantitative Tightening, each influencing the US Dollar differently. Quantitative Easing boosts credit flow with more Dollars, while Quantitative Tightening halts bond purchases, supporting the Dollar’s value.
With the Dow Jones wavering near 46,600, we see clear signs of investor hesitation driven by the ongoing US government shutdown. This uncertainty creates an ideal environment for volatility-based derivative strategies. Given that the Cboe Volatility Index (VIX) is currently trading above its historical average near 22, purchasing options like straddles or strangles on major indices could be prudent ahead of any shutdown news.
The Federal Reserve is sending mixed signals, which is fueling the market’s indecisiveness. While the dovish tilt in the recent minutes points toward more rate cuts, the surprising upward revision to long-term GDP growth adds a hawkish wrinkle. We believe this conflict justifies the market’s tepid response and suggests that any sharp rally might be sold into until there is clearer policy direction.
Upcoming Consumer Sentiment Report
This Friday’s University of Michigan Consumer Sentiment report is now a critical data point for derivative traders. A significant drop in the headline number or, more importantly, a spike in the 5-year inflation expectations could spook the market and threaten the odds of a December rate cut. Traders should watch options pricing on Thursday, as it will signal how large of a market move is expected following the release.
Looking back at the 2018-2019 government shutdown, we remember that the market was initially volatile but ultimately looked past the disruption once a resolution appeared likely. This suggests that while near-term puts on the DJIA might offer protection, a prolonged bearish stance based solely on the shutdown could be a mistake. The key is the duration, and with each passing week of stalemate, the economic damage and market risk grow.
For those focused on interest rates, the October 29 rate cut is almost fully priced in, offering little opportunity. The real play is on the timing of the third cut, with Fed Funds futures showing a slight shift in odds from December to January 2026. This creates an opening for calendar spread trades on SOFR futures to capitalize on this evolving timeline.
The Fed’s commitment to cutting rates continues to place downward pressure on the US Dollar. The last Consumer Price Index report, which showed core inflation still at 2.7% in August 2025, highlights the risk the Fed is taking by easing policy. We see this as a sustained headwind for the dollar, making long-dated call options on currency ETFs like the Invesco CurrencyShares Euro Trust (FXE) an attractive position.
