Insights 
VT 
The Dow Jones Industrial Average (DJIA) ended the trading week on a positive note, recovering by about 240 points from previous lows and aiming to maintain a position above key moving averages. Earlier in the week, the stock market faced turbulence due to bankruptcies and debt quality concerns in the lending and banking sectors.
US China Trade Talks
US President Donald Trump suggested a potential reduction of tariffs on China, which contributed to the market’s recovery. Fresh negotiations between Trump and China’s President Xi Jinping are planned in the following weeks, alongside meetings involving key Treasury officials.
Meanwhile, the US government shutdown persists, resulting in delayed official datasets. This situation restricts Federal Reserve access to data possibly leading to interest rate cuts aimed before the year’s end.
The Dow Jones is a price-weighted index comprised of 30 major US stocks. Its performance is influenced by company earnings, macroeconomic data, and Federal Reserve interest rates. Dow Theory, developed by Charles Dow, helps identify stock market trends by analysing trends, volumes, and comparing averages.
Investors can trade the DJIA using different methods such as ETFs, futures contracts, and mutual funds. These offer exposure to the index without requiring individual purchases of all 30 constituent stocks.
Market Volatility
With the Dow Jones finding its footing, we are seeing a classic tug-of-war between fear and greed. The recent scare from the banking sector caused the CBOE Volatility Index (VIX) to briefly spike above 25, and while it has settled back to around 18, this is still above the year’s average, signaling underlying anxiety. This suggests traders should be prepared for sharp, sudden movements in either direction.
The market’s rebound hinges on optimism over renewed US-China trade talks. We are positioning for a positive market reaction leading into the planned meetings, as this follows a familiar pattern we saw repeatedly during the 2019 trade negotiations, where rumors and scheduled talks often created short-term rallies. The potential for reduced tariffs is currently the single biggest upside catalyst for industrial and tech stocks in the index.
The ongoing government shutdown is paradoxically bullish for equities in the immediate term. With the flow of official economic data halted, the Federal Reserve lacks any new evidence that could deter it from its signaled path of monetary easing. The CME FedWatch Tool reflects this reality, showing that market participants are now pricing in a greater than 90% probability of a quarter-point rate cut at the Fed’s November meeting.
Given this environment, we believe it is a good time to use options to express a cautiously bullish view. Buying call options on the SPDR Dow Jones ETF (DIA) with December 2025 expiration dates offers a way to profit from a potential year-end rally driven by Fed cuts and a trade détente. This strategy provides upside exposure while limiting downside risk to the premium paid if the trade talks fail or the shutdown creates unexpected economic damage.
However, we cannot ignore the fragility exposed by the recent lending sector bankruptcies. We only have to look back to the regional banking crisis in March 2023 to remember how quickly contagion fears can grip the market, even in a supportive interest rate environment. Therefore, layering in some protective puts or maintaining hedges against a sharp downturn remains a prudent measure.
