Insights 
VT 
In July 2025, the S&P Global Services PMI indicated an increase, with the services index at 55.7 compared to 52.9 in June. The preliminary estimate was 55.2. The composite index rose to 55.1 from 52.9 in the previous month, aligning with the preliminary figure of 54.6.
The upcoming ISM nonmanufacturing index is anticipated to be 51.5, a rise from 50.8 in June. In the US service sector, five out of seven sectors recorded increased business activity in July, up from four in the prior month. Technology witnessed its fastest growth since June 2021, while financials experienced the quickest pace since December 2024.
Sector Growth Overview
Industrials noted 18 consecutive months of expansion, marking the sharpest rise since May 2022. Consumer Goods and Consumer Services sectors experienced marginal growth, with Consumer Goods holding the weakest position in its current four-month growth streak. Healthcare saw a slight decline, the steepest since May 2024. Basic Materials recorded a fifth consecutive monthly drop in output, with the contraction rate accelerating from June.
The services sector showed surprising strength in July, with the final PMI reading of 55.7 coming in much higher than last month. This suggests the broader economy is on solid footing. Given this strength, we believe the Federal Reserve will be in no hurry to consider interest rate cuts.
The real story is the growing split within the economy. Technology is seeing its fastest growth since mid-2021, and financials and industrials are also expanding rapidly. At the same time, consumer-related sectors are slowing, and basic materials are falling deeper into contraction.
Market Volatility and Strategies
This divergence means overall market volatility should remain low, as recession fears fade. The VIX has already reflected this, trending down below 14 in recent weeks, a level we haven’t consistently seen since late 2024. This environment is generally favorable for strategies that involve selling options premium.
We should respond by focusing on the clear winners. Buying call options on technology ETFs like the XLK is a direct way to ride the momentum, especially as the sector is already up over 20% since January 2025. Similarly, industrial sector strength, now in its 18th straight month, supports bullish positions there.
To balance this, we should look at bearish plays on the weak spots. Buying put options on basic materials ETFs like the XLB makes sense, as the sector has been contracting for five straight months and is down 5% year-to-date. This creates a relative value trade that profits from the gap between the strong and weak parts of the economy.
With strong data pushing back expectations for rate cuts, derivatives tied to interest rates are also in play. Fed funds futures now show the market is pricing in less than a 15% chance of a rate cut by year-end, down sharply from June. This hawkish shift could make buying put options on long-duration Treasury bond ETFs a sensible hedge.
