Insights 
VT 
In Monday’s regular session, the Dow Jones fell 0.14%, but the S&P 500 and Nasdaq Composite rose 0.36% and 0.71% respectively. Gains were driven by AI-related deals, notably AMD’s 23.7% surge after announcing a multiyear agreement with OpenAI.
Dow Jones Industrial Average
The Dow Jones Industrial Average comprises 30 traded US stocks and is price-weighted. Its performance is affected by company earnings, macroeconomic data, and interest rates set by the Federal Reserve. Dow Theory helps identify stock market trends by comparing the DJIA and the DJTA.
With US index futures slipping, we see the current government shutdown as creating short-term noise rather than a fundamental shift in the market’s direction. The key driver remains the Federal Reserve, with markets overwhelmingly pricing in rate cuts for both October and December. This expectation of looser monetary policy should cushion any significant downside in the coming weeks.
Historically, government shutdowns have caused temporary volatility but have not derailed bull markets driven by dovish central bank policy. During the 35-day shutdown that began in December 2018, for example, the S&P 500 actually rose over 10% as the Fed signaled a pivot away from rate hikes. We view the current situation through a similar lens, where the political drama is secondary to the prospect of cheaper money.
The weakening labor market data, with the latest ADP report showing a gain of only 95,000 jobs and JOLTS job openings falling to 8.5 million, reinforces the case for imminent Fed rate cuts. This economic softness, combined with recent inflation reports showing core CPI has fallen to 2.8%, gives the Fed a clear runway to ease policy. Traders should therefore consider using any shutdown-related dips as buying opportunities for equity index futures and call options.
Divergence Between Dow and Nasdaq
The divergence between the Dow and the Nasdaq highlights a critical theme: the resilience of the AI and tech sectors. We saw a similar dynamic in 2023, where a handful of mega-cap tech stocks drove index performance despite broader economic concerns. Given this, derivative strategies should favor the Nasdaq 100, perhaps through call spreads on the QQQ ETF or by targeting individual high-flyers in the semiconductor space.
The delayed release of key data like the Nonfarm Payrolls report will likely increase implied volatility, making options strategies more attractive. With the VIX index having climbed above 19 in recent sessions, selling premium through strategies like iron condors on broader indices could be profitable for those who believe the market will remain range-bound. However, the primary play remains being positioned for a rally once a government funding deal is reached or the Fed officially signals its next rate cut.
