Insights 
VT 
The NFIB small business optimism index for July stood at 100.3, surpassing the expected 98.6. This improvement is attributed to respondents noting better business conditions and a favourable time to expand.
Despite the positive trend in optimism, the Uncertainty Index rose by eight points from June, reaching 97. Labour quality emerged as a primary concern for 21% of small business owners, marking a five-point increase from the previous month, and becoming the leading challenge they face.
Small Business Optimism and Growing Market Nervousness
The rise in small business optimism to 100.3 is a positive signal for the economy, particularly for small-cap stocks. However, the simultaneous eight-point jump in the Uncertainty Index to 97 is the more critical piece of information for us. This divergence suggests that while sentiment is improving, underlying market nervousness is also growing.
Such a high Uncertainty Index reading implies that we should be prepared for bigger price swings in the coming weeks. We’ve seen the VIX creep up to around 18 recently, a notable increase from its lows in the spring of 2025. This environment makes buying options, such as straddles on indices like the Russell 2000, an attractive strategy to trade the expected volatility around upcoming economic data.
The report’s top concern, labor quality, points directly to persistent wage pressures, which we saw reflected in the recent July 2025 CPI print of 3.4%. This keeps the Federal Reserve in a difficult position, even after holding rates steady in June and July. Interest rate derivative markets are still pricing a roughly 40% chance of another hike this year, which could cap any major stock market rally.
Opportunities in the Russell 2000
The news that businesses see this as a good time to expand is particularly bullish for the Russell 2000 index of small-cap companies. This index has underperformed the S&P 500 for most of 2025, so this could be the catalyst for a catch-up trade. We might consider selling out-of-the-money puts on the IWM ETF to collect premium, betting that this optimism provides a floor for prices.
We are in a market that shows conflicting signals, much like the economic environment of 2022 and 2023. Back then, strong economic data often clashed with high inflation fears, leading to very choppy and rotational markets. This suggests that instead of betting on a single direction, focusing on relative value trades or volatility might be the more prudent approach.
