US durable goods orders excluding transportation rose by 0.9% in March. The forecast was 0.4%.
The reading was 0.5 percentage points above expectations. This suggests stronger demand for non-transport durable goods than projected.
Stronger Business Investment Signals
The March durable goods data shows business spending is much stronger than anyone anticipated. This points to a resilient economy where companies are still willing to invest in equipment and machinery for the long term. It suggests that underlying economic momentum is holding up despite higher borrowing costs.
We believe this report will force the Federal Reserve to remain cautious. With recent Consumer Price Index data showing inflation stubbornly above target at 3.1%, this strong business activity reduces the urgency for any interest rate cuts. This adds weight to the argument that the Fed will hold rates steady through the summer.
For interest rate traders, this means bets on near-term rate cuts are likely to unwind further. Fed funds futures markets are already scaling back the odds of a cut before September, and this data reinforces that trend. We see value in positions that profit from rates staying elevated, such as selling Eurodollar futures or buying put options on Treasury bond ETFs.
In the equity markets, this creates a conflicting signal that should increase volatility. We favor call options on industrial sector ETFs that benefit directly from this capital expenditure, while simultaneously considering puts on rate-sensitive growth stocks that suffer when rate cut hopes fade. This divergence between cyclical strength and tech weakness could be a key theme in the coming weeks.
Volatility Hedging Opportunities
This environment is ripe for a rise in market uncertainty. With the VIX index recently trading near a low of 15, we think buying VIX call options offers a cheap way to protect against the market turbulence that often follows a shift in Fed expectations. A strong economy clashing with a hawkish central bank is a classic recipe for bigger price swings.
We are reminded of the market dynamics we saw back in 2025, when stronger-than-expected data repeatedly forced traders to push back their timelines for a Fed pivot. The market consistently underestimated the economy’s resilience back then. We view this durable goods report as a signal that the same pattern could be emerging now.
