Major US indices showed mixed results in their latest session. The Dow Industrial Average decreased by 316.38 points or 0.70%, ending at 44,693.91. Meanwhile, the S&P 500 saw a slight rise, climbing 4.44 points or 0.07% to 6,363.35, and the NASDAQ increased by 37.94 points or 0.18%, finishing at 21,057.96.
Chip stocks experienced upward trends. Nvidia rose by 1.72%, Broadcom by 1.77%, and AMD by 2.19%. In contrast, Intel’s performance was more volatile; after reporting earnings post-market, its shares dropped by 3.66%. Subsequently, Intel showed a minor recovery, trading up close to 1%.
Market Trends
We are seeing a clear split in the market, with industrial stocks pulling back while technology-focused indices hold their ground. Year-to-date, the tech-heavy NASDAQ 100 has gained over 25%, while the Dow Jones Industrial Average is up a more modest 4%, confirming this divergence. This suggests traders should be cautious about broad market bets and instead focus on specific sectors.
The current environment of mixed signals often precedes a pickup in volatility, even though the CBOE Volatility Index (VIX) has remained historically low, recently trading around the 14-15 level. We believe this presents an opportunity to buy protection or make speculative plays at a relatively low cost. Options strategies that profit from price swings, such as long straddles or strangles, could be effective on indices ahead of upcoming economic data releases.
Within the technology space, it’s critical to be selective, as shown by the differing fortunes of semiconductor companies. While the iShares Semiconductor ETF (SOXX) is up more than 40% this year, the performance of individual companies varies greatly post-earnings. We would favor using call spreads on the sector’s leaders to capitalize on continued upside while defining our risk.
Economic Uncertainty
Historically, this type of market rotation often occurs during periods of economic uncertainty or shifts in Federal Reserve policy. The industrial average’s failure to hold its record high is a warning sign that the “old economy” stocks may be more vulnerable to a slowdown. Therefore, buying protective puts on an industrial-focused ETF could serve as a valuable hedge against our technology positions.
