(Justin Vaughn, Editor, Options Trading Report)
Word on the Street is Picking Up Steam….The Federal Reserve ‘could’ cut a half point. According to the CME FedWatch tool Friday afternoon “there is a 47% chance that the Fed would cut rates to a range of 4.75% to 5%.” Both the Nasdaq Composite and S&P 500 showed week ending gains with the Nasdaq Composite and S&P 500 surging 6% and 4%, far better than the first four days last week. “Rates are historically restrictively high right now,” said Adam Hetts, global head of multi-asset at Janus Henderson Investors.” While 50 basis points seems a lot more than 25 basis points, in the context of how high rates have been and for how long, it’s not an outrageous number.” The European Central Bank, under pressure to cut rates, did so, cutting 0.25% for the second time in the past three months, attempting to harness inflation. All three indexes were up with the Dow Jones Industrial Average jumping up 297 points while the Russell 2000 made up of smaller value stocks moved positively Thursday and Friday, up 1.6%. Gold stayed strong, finishing at a new record on Friday at $2,581.30 an ounce, up 1.2%. Hot chips and AI and techs flexed again, moving higher both Thursday and Friday. Nvidia paced the strong finish, up 9.8% for the week. The Japanese Yen broke out of a 7 day losing spree, gaining 3.9% in value and benefitting from a weaker dollar, down last week 1%. Oil continued to waffle near $71.00 a barrel, not able to generate any upside. Gasoline at the pump averaged $3.29.9 a gallon across the nation.
Investors and traders on Monday were betting that Mr. Powell and his Fed colleagues were favoring a half point rate cut. The market seemed to favor the bigger half point cut as Mr. Powell’s comments leaned that way, as ‘the day’ draws near. The bond market gave clues that the rare cut would be larger as the 2-year Treasury weakened, floating downward to a two-year low. The “Benchmark 10-year Treasury fell to 3.622% hitting a June 23th low. The Dow Jones Industrial Average jumped 224 points to 41622.08, a record high. The tech-heavy Nasdaq Composite fell slightly, off 0.5% as the S&P 500 edged up a bit. 0.1%. “We are getting incrementally more concerned about growth,” said Alessio De Longis, head of investments at Invesco Solutions. Odds got stronger on Tuesday that a larger cut was possible according to CME Group’s FedWatch tool. The long awaited announcement is coming Wednesday as the market braced, with drifting stocks in nearly all sectors wobbling too and fro. Tuesday closed again with the Dow Jones falling 0.4% with the S&P 500 and Nasdaq up a smidgen at 0.3% and 0.2% respectively, even as a retail sales report showed sales were up 0.1%.
It’s Official… Mr. Powell spoke and the Fed went big, with a half point rate cut, the first in 4 years giving big help to borrowers, credit card owings and home buyers. The heavy rate cut ‘put-to-bed’ any thoughts that the Fed might ‘ease-up. Mr. Powell was resolute, opting for a half point rate cut, sending the message that taming inflation was job number one. Four weeks ago the half-point wasn’t on the table. Stocks reacted strongly at the rate cut announcement initially. Then it seemed the traders and investors hit the sideline leaving the market to flounder. Stocks on Thursday enjoyed a banner day with the tech heavy Nasdaq Composite soaring 440 points up 2.51% while the benchmark S&P 599 was up 95 points. The steady-eddy Dow Jones Industrial Average surged 522 points.
RUMBLINGS ON THE STREET
Mervyn King, former governor of the Bank of England, Barron’s – “A transparent monetary policy reaction function means that the news should be in developments of the economy, not in the announcements of decisions by the central bank.”
Gibson Smith, Founder , Smith Capital Investors, Barron’s – “It will be hard for the Fed to engineer a perfect soft landing. The bond market is sending the signal that the Fed has remained overly restrictive in its policy. That is ultimately going to cause problems for the economy.”
Adam Hetts, global head of multi-asset at Janus Henderson Investors, WSJ – “Rates are historically restrictively high right now, while 50 basis points seem a lot more than 25 basis points, in the context of how rates have been and for how long, it’s not an outrageous number.”
William Pesek, former columnist for Barron’s and Bloomberg, – “Time isn’t on China’s side. The longer-run challenges posed by stagnant wages, weak consumer demand, high youth unemployment, and weak investor confidence will be with China for a long time if Xi’s inner circle doesn’t get busy–and fast.”
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