US stocks have experienced fluctuations throughout the week, with a positive trend now emerging. Despite a rocky start, the market has shifted upwards towards the week’s end.
Amazon is at the forefront, achieving a 3.7% increase, which brings its shares close to a record high. Economic data has shown a balance; the figures are moderate enough to encourage rate cuts without instigating fears of an impending recession.
Bond Market Influence
In the bond market, yields initially rose but have diminished following weaker economic data. This pattern underscores the stronger influence of interest rates over economic strength in a leveraged market.
Technically, there are no major obstacles preventing another rise above 6500 in the stock market, despite typically negative September seasonals. The forthcoming jobs report is pivotal in the short term, although its reliability is in question.
The current market rally is being driven by economic data that is weak enough to encourage more rate cuts but not so weak as to signal a recession. This suggests we should consider buying call options on major indices like the SPX to capitalize on the upward momentum. The recent ISM Manufacturing PMI reading of 48.5 supports this view, indicating a slowdown without triggering recession alarms.
Falling bond yields are making growth stocks particularly attractive, with Amazon leading the charge to new highs. We should look at call options on the Nasdaq-100 ETF (QQQ) or individual tech leaders to play this specific trend. We saw a similar dynamic back in 2023 when falling bond yields fueled a massive rally in technology stocks.
Market Volatility Strategy
Tomorrow’s jobs report is the next major hurdle, but there’s a belief that the numbers may not be reliable. With the VIX currently hovering around 17, implied volatility is elevated, making it a good time to sell out-of-the-money put spreads. This strategy allows us to collect premium while betting that the market will not see a significant downturn after the report.
Despite the bullish sentiment, we must acknowledge the historical weakness of markets in September. Historically, September has been the worst-performing month for stocks, with the S&P 500 averaging a negative return for over 50 years. Therefore, purchasing some cheap, out-of-the-money puts on the SPY could serve as a cost-effective hedge against any seasonal downturns or a negative market shock.
