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Notes from the Trading Desk: July 21, 2019

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US Equities moved lower last week. The Russell 2000 was the worst performer, as it fell 1.41%. The Dow only dropped 0.65%, while the S&P 500 and the Nasdaq fell 1.23% and 1.18%, respectively. There was a slightly defensive tone in equities, as Staples and Utilities were two of the top three performing sectors. Communication Services (-3.06%), Energy (-2.70%), and REITs (-2.31%) all lagged. The fall in Communication Services was largely due to the sharp drop in Netflix, as the streaming giant fell 15.6% following a sizeable miss in subscribers. The underperformance in Energy can largely be attributed to the 7% plunge in oil. Elsewhere, the 10-year continued its sideways chop between 2.00% and 2.20%, while the 3-month T-Bill continued its move lower.

Once again, the Federal Reserve seemed to command the market’s attention as the de-bate over whether or not the Fed should cut by 25 or 50 bps raged on. Thursday, New York Fed President John Williams said, “It’s better to take preventative measures than to wait for disaster to unfold.” Williams went on to remark that in an environment of low interest rates, central banks must act more quickly to combat “the first sign of economic distress”. As we highlighted in the last edition of Notes, though the economy is still in a position of strength, cracks in the foundation are certainly beginning to show. Following Williams’ Thursday speech, the probability of a 50 bps cut skyrocketed to 62.6%, nearly doubling from the 33.3% chance on Wednesday. However, the Fed quickly clarified Williams’ comments and talked down the notion of a 50 bps cut. As a result, expectations for a 50 bps cut fell to 17.9% by Friday. So, with the Fed meeting next week, it seems that a 25 bps cut is all but set in stone.

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Notes from the Trading Desk - July 21, 2019-OPT

 

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