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James Hyerczyk
U.S. Stock Indexes

The major U.S. equity indexes posted a volatile two-sided trade on Friday before settling lower for the session. The markets were bid higher early in the day as better-than-expected earnings results from Microsoft underpinned technology stocks and added to the bullish tone generated the day before by New York Fed President John Williams who strongly implied the central bank would lower interest rates by 25-basis points this month. Some investors even went as far as suggesting Williams was indicating a more aggressive 50-basis point rate cut when the Fed meets on July 30-31.

Williams essentially said that the Fed cannot wait for economic disaster to unfold and must add stimulus. Traders initially ran with his comments on Thursday, raising bets for a larger, half-percentage point cut in rates to 41%, from a 23% chance a week ago, according to CME Group’s FedWatch program.

In the cash market, the benchmark S&P 500 Index settled at 2976.61, down 18.50 or -0.66%. The blue chip Dow Jones Industrial Average finished at 27154.20, down 68.77, or -0.27% and the technology-based NASDAQ Composite closed at 8146.49, down 60.75 or -0.80%.

Stocks Retreat after Aggressive Rate Cut Hopes were Squashed

Wall Street’s main stock indexes topped out and started their session-long retreat following a report that the Federal Reserve plans to cut interest rates by only a quarter percentage point at the end of the month.

Additionally, it seems Williams may have miscommunicated his message as the New York Fed downplayed his remarks saying they were not intended to telegraph any hints about upcoming Fed policy actions. Instead, they should be considered academic observations.

The Wall Street Journal also reported, while the U.S. central bank is not prepared to make a bigger 50-basis point cut, it may make further rate cuts in the future given concerns about a decline in global economic growth and uncertainty about trade.

Shortly after the cash market opening on Friday, futures market investors placed the odds of a half-a-point cut at 71%, but fell to 22.5% by the end of the session on Friday, according to the CME Group’s FedWatch tool.

The whipsaw action in the stock market on Friday was definitely fueled by investors flipping to bullish amid speculation of a 50-basis point rate cut, then shifted back to bearish when evidence supporting a smaller rate cut surfaced.


Other News

Declining issues outnumbered advancing ones on the NYSE by a 1.29-to-1 ratio; on NASDAQ, a 1.51-to-1 ratio favored decliners.

The S&P 500 posted 45 new 52-week highs and five new lows; the NASDAQ Composite recorded 75 new highs and 84 new lows.

Volume on U.S. exchanges was 6.25 billion shares, compared to the 6.59 billion average for the full session over the last 20 trading days.

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