Following the U.S. stock market's worst day in a year and a volatile session on Tuesday, investors are looking ahead to Wednesday's key events: the release of CPI inflation data in the morning and Oracle's earnings report after the bell. These events are seen as critical tests for market sentiment and direction, especially as the market seeks stability after recent turbulence [1].
Despite economists expecting annualized CPI to exceed 4% for the first time in three years, interest-rate sensitive sectors such as regional banks and homebuilders outperformed on Tuesday. Bonds also firmed, and small-cap stocks finished higher, indicating some resilience in the market. Options trading reflected this optimism, with call options dominating in homebuilding ETFs XHB and ITB—3,200 calls versus 68 puts in ITB, and a nearly 10-to-1 call-to-put ratio in XHB. Similarly, the regional bank ETF KRE saw more than three times as many calls as puts traded [1].
A contributing factor to this optimism is the decline in crude oil prices, which slipped below $86 per barrel on Tuesday, the lowest since mid-April. Ben Emons, CIO and founder at FedWatch Advisors, noted that the drop in oil prices could lead to a positive surprise in CPI data, suggesting that markets are responding to both the oil move and political developments, such as recent comments from Trump regarding Iran. Despite renewed geopolitical tensions, oil prices remained only slightly higher early Wednesday [1].
Attention is also focused on Oracle, the largest component of the IGV ETF and a software giant with a market capitalization near $600 billion. Options traders are anticipating a 12% move in Oracle's stock following earnings, the largest implied move since March 2020. Bullish sentiment is evident, with twice as many calls as puts traded on Tuesday—over 27,000 calls versus just under 19,000 puts—and approximately $220 million of the $300 million in options premium tied to calls, according to SpotGamma data [1].
CONCLUSION
The market is bracing for significant moves with CPI data and Oracle's earnings on deck, but bullish options flows in key sectors and stocks suggest underlying optimism. Lower oil prices and strong call activity in homebuilders, regional banks, and Oracle indicate that investors are positioning for potential upside. The outcome of Wednesday's events will likely set the tone for market direction in the near term.