US futures are holding higher, with new record highs anticipated. Earnings from Microsoft and Meta have contributed to an uplift in market sentiment. AI-driven stocks continue to excel, with S&P 500 futures up 1.0% and Nasdaq futures rising 1.4%.
Tech share gains are also impacting other markets, with the Dow increasing by 0.5%. In Europe, the DAX is up 0.5% and CAC 40 up 0.2%, with DAX closing July with nearly 2% gains and CAC 40 gaining just under 3%.
Federal Reserve And Market Drivers
The Federal Reserve’s stance was not as dovish, but the market has other key drivers for sentiment. The focus remains on tech earnings reporting, especially with further releases expected later.
Apple and Amazon are expected to release their earnings next, with further analysis to follow. US jobs report is also anticipated, with any major surprises potentially affecting the current narrative.
With the market clearly being driven by big tech earnings, traders should remain focused on AI-related momentum. We are seeing a powerful trend where positive results from one tech giant lift the entire sector, as evidenced by the S&P 500 and Nasdaq futures rally. The Nasdaq 100 is now up over 22% since the start of the year, showing the strength of this narrative.
Strategies And Risk Considerations
Given the strong performance from Microsoft and Meta, derivative traders should consider bullish positions ahead of Apple and Amazon’s earnings reports later today. Buying short-dated call options on these names, or on the QQQ ETF, is a direct way to speculate on another AI-fueled earnings beat. This strategy is aggressive but aligns with the market’s current one-track mind.
However, we must also consider risk, as the market is ignoring a less-dovish Fed from yesterday. The CBOE Volatility Index, or VIX, is currently trading near a low of 13, indicating a high degree of complacency among investors. This low-cost environment makes it cheaper to buy protective put options on the SPY as a hedge against any unexpected earnings misses or a negative market reaction.
All eyes will shift to tomorrow’s US jobs report, which could easily change the market’s direction. We are looking for a number around the consensus estimate of 190,000 new jobs to keep the current calm. A significant miss on that figure would bring recession fears back to the forefront and could unwind this week’s tech gains.
The pattern we are witnessing is very similar to the AI rally that began back in late 2023, where a handful of stocks drove the majority of index gains. In this environment, selling out-of-the-money put options on high-quality tech stocks can be a viable strategy to collect premium. This profits from the stocks either rising, staying flat, or only falling slightly.
