Insights 
VT 
US stocks opened higher today, recovering from Tuesday’s sell-off. The tech sector, particularly the Nasdaq, increased by 0.4%. Some tech stocks, like Palantir, remain overvalued despite potential, seeing a decline of 4%. However, leading tech companies like Amazon, Meta, Tesla, AMD, and Nvidia hold lower P/E ratios than their 10-year averages, stabilising their positions.
Market Fundamentals
The price-to-earnings ratio for the S&P 500 is 25 and 31 for the Nasdaq 100, which, while above 5-year averages, is not excessively high to initiate a sell-off. Both indices maintain strong gross margins, with the Nasdaq 100 at 52% and the S&P 500 at 38% compared to 31% for the Russell 2000. Most blue-chip companies in the S&P 500 report positive earnings, with only 6% showing negative results.
Market fundamentals appear strong, with a chance of rate cuts before the year’s end. The labour market remains stable, as evidenced by the ADP’s report showing a stronger-than-expected employment increase of 42k in October. This is important for US consumer and tech sectors, which rely on economic stability. Weaker-performing consumer-related sectors on the S&P 500 might benefit from these economic conditions.
Given the market’s quick rebound from Tuesday’s drop on November 4, 2025, implied volatility has likely eased slightly from its peak. This presents an opportunity for us to sell premium, betting that the sell-off was an overreaction and not the start of a new downtrend. We should consider selling cash-secured puts or put credit spreads on strong S&P 500 names that dipped, positioning ourselves to either collect the premium or acquire solid companies at a lower price.
The fundamental backdrop for large-cap tech remains strong, with key players like Nvidia and Meta still trading at P/E ratios below their 10-year averages. To capitalize on this, we could use bull call spreads on the Nasdaq 100 ETF (QQQ) for the coming weeks. This strategy allows for upside participation while defining our risk, which is prudent after Tuesday’s warning shot.
Tech Sector Perspective
We agree that this is not a repeat of the dot-com bubble, when looking at historical data for perspective. Back in late 1999, the Nasdaq 100’s P/E ratio was well over 80, a stark contrast to the current level of 31, which is supported by very strong earnings and margins. Therefore, we should view any significant dips in the tech sector as buying opportunities rather than a sign of a bursting bubble.
The high probability of a Fed rate cut before the year-end, which CME FedWatch Tool data for November 5, 2025 shows at over 65%, should provide a tailwind for equities. This is particularly relevant for the consumer-focused sectors that have been hit hard over the last month. We see potential in buying calls on the Consumer Discretionary Select Sector SPDR Fund (XLY), which fell over 12% in October 2025 but could rebound sharply on positive economic signals.
Despite this optimism, Tuesday’s sell-off reminded us that markets can turn quickly. As a hedge against another sudden drop, we can purchase some cheap, out-of-the-money put options on the SPX with expirations in late December. This provides a cost-effective insurance policy for our portfolios, allowing us to stay invested while protecting against downside risk.
