Insights 
VT 
The Dow Jones Industrial Average fell over 500 points amid ongoing US-China trade tensions. The US considers restricting software exports to China due to China’s control over rare earth minerals, affecting the tech sector.
Subprime lender PrimaLend’s bankruptcy adds pressure to US credit markets, following a recent automotive lender collapse. US farmers criticised President Trump’s plan to import Argentine beef after tariffs on Brazilian imports, facing backlash.
Inflation and the CPI
The Consumer Price Index (CPI) reflects inflation by comparing prices of goods over time, excluding volatile food and energy for the CPI Ex Food & Energy. Generally, a high CPI boosts the US Dollar, while a low reading weakens it.
The US Federal Reserve aims for stable prices and maximum employment, targeting 2% YoY inflation. Current inflation pressures, driven by supply issues, keep CPI high. The Fed plans to maintain its aggressive approach to controlling inflation in the near term.
Given the fresh risk-off sentiment and the Dow’s recent struggles, we are seeing an environment ripe for higher volatility. The CBOE Volatility Index (VIX) has already ticked up to 25 this week, signaling that traders are pricing in larger market swings ahead. This suggests that buying options, such as puts on broad market indices like the SPY, could be a prudent way to hedge against further declines.
Trade Friction with China
The escalating trade friction with China poses a direct threat to the technology sector, which relies heavily on Chinese rare earth minerals. We’ve watched the Technology Select Sector SPDR Fund (XLK) fall nearly 6% since these new tensions emerged in early October 2025. This pattern is very similar to what we saw during the 2018-2019 trade disputes, making puts on key semiconductor and hardware companies a logical play.
Fissures in the credit markets, evidenced by the PrimaLend bankruptcy, warrant a defensive posture toward financial stocks. High-yield corporate bond spreads have widened by 50 basis points this month, a clear sign of increasing credit risk across the economy. We should look for weakness in regional bank stocks and consider strategies that profit from a potential downturn in the financial sector.
Stubbornly high inflation continues to force the Federal Reserve’s hand toward maintaining an aggressive policy stance. The latest CPI data from September 2025 showed core inflation at 3.9%, still nearly double the Fed’s target. This reinforces expectations for higher interest rates for longer, making derivatives tied to interest rate futures, like options on the 2-Year Treasury Note, valuable tools.
A hawkish Fed is also keeping the US dollar strong, which we’ve seen with the U.S. Dollar Index (DXY) recently pushing to a 12-month high of 108.50. This creates headwinds for US companies with significant overseas sales and presents opportunities in currency derivatives. We should consider long positions in the dollar against currencies with more dovish central banks.
