Insights 
VT 
Dow Jones futures rose 0.65% to nearly 47,700 during European hours, with the S&P 500 and Nasdaq 100 futures increasing by 0.84% and 1.13%, respectively. This improvement is linked to reports of US and Chinese negotiators reaching an agreement on major disputes, setting the stage for Presidents Donald Trump and Xi Jinping to finalise a trade deal.
Market Sentiment and Federal Reserve Prospects
US Treasury Secretary Scott Bessent announced that President Trump’s threat of 100% tariffs on Chinese goods is no longer active, with China agreeing to significant soybean purchases and pausing rare-earth export controls. Market sentiment is further bolstered by the potential for a US Federal Reserve rate cut, with a 97% chance being priced in for October.
Recent US inflation data has softened, and Wall Street closed higher last Friday, with major indices such as the Dow Jones and Nasdaq 100 gaining over 1%. Financial markets are now focused on upcoming earnings reports from major tech companies including Apple and Microsoft.
The Dow Jones Industrial Average (DJIA) comprises 30 major US stocks and is price-weighted. Factors influencing DJIA include company earnings, macroeconomic data, and Federal Reserve interest rates. Trading options include ETFs, futures contracts, and mutual funds.
With US index futures pointing sharply higher, we see clear tailwinds for the market in the immediate term. The reported consensus in US-China trade talks removes a major source of uncertainty that has weighed on sentiment for years. This positive momentum is amplified by the extremely high probability of a Federal Reserve rate cut this week.
Given this risk-on mood, we should consider buying call options on the S&P 500 and Nasdaq 100 to capture further upside. This environment feels similar to late 2019, a period when a combination of trade deal progress and Fed rate cuts propelled the S&P 500 to a gain of over 8% in that year’s final quarter. However, we must be aware that implied volatility is likely elevated ahead of major tech earnings reports.
Managing Risk and Profit Potential
The upcoming earnings from giants like Apple and Alphabet introduce significant event risk that we need to manage carefully. Historically, these mega-cap tech stocks can see average post-earnings price swings of over 5%, creating both opportunity and danger. Using defined-risk strategies like bull call spreads could be a prudent way to profit from a continued rally while capping potential losses if a key report disappoints.
We should also anticipate that the CBOE Volatility Index (VIX) will likely decline as these major uncertainties are resolved. With markets pricing in a 97% chance of a Fed cut, the event itself may lead to a drop in volatility once it becomes official news. Therefore, shorting volatility through VIX futures or buying put options on volatility-tracking ETFs could be a profitable secondary strategy.
For those with a higher risk tolerance, going long on index futures like the E-mini S&P 500 (ES) offers a direct and leveraged way to participate. It is critical, however, to remain cautious heading into the planned Trump-Xi meeting on Thursday. We must remember how quickly sentiment reversed during similar trade talks between 2018 and 2020, where a single headline could erase a week’s worth of gains.
