50 Basis Point Rate Cut In July Possible

50 Basis Point Rate Cut - Big Decline In Small Caps, Large Caps Fall Slightly

Before getting into the possibility of an upcoming 50 Basis Point Rate Cut, let's review the current market. S&P 500 fell slightly for the 2nd straight time on Monday as it was down 0.17%. The market is cautiously waiting for the G-20 summit. But investors were cautiously waiting for the Fed meeting last week, stocks started rallying sharply ahead of the meeting. 

We can’t expect the market to be quiet because there will be news reports on the trade talks every day. At any moment President Trump can tweet that the talks are going well and a deal is close. We’ve seen positive trade related comments from the administration cause stocks to increase all year. Even though those comments this winter and spring were clearly wrong as there still isn’t a deal.

Nasdaq fell 0.32% on Monday. It will crater if there’s no trade deal. It is a tech-heavy index and tech stocks are affected the most by tariffs. Russell 2000 fell 1.26%. It has underperformed the S&P 500 for the past couple of quarters. That’s even with the dollar index relatively high and interest rates very low. 

VIX fell 0.91% to 15.26. This was another day where the market and VIX were positively correlated. CNN fear and greed index is at 50 as it fell 2 points. If the market craters in the next few weeks, it won’t be because sentiment was euphoric.

Worst sectors on Monday were energy and consumer discretionary. They fell 0.93% and 0.51%. Oil actually increased 0.8% to $57.90. Investors probably are getting more pessimistic on the demand side. 

If the geopolitical tensions are rectified, oil could collapse at least 5% very quickly. Best 2 sectors were materials and consumer staples as they increased 0.45% and 0.27%.

50 Basis Point Rate Cut - Fed Definitely To Cut Rates In July

In keeping with the theme that investors became less enthused about economic growth prospects, both the 10-year yield and the 2-year yield fell 4 basis points. Latest 10-year bond yield is 2.01% and the latest 2-year bond yield is 1.73%. 2-year yield falling means the odds of multiple rate cuts this year increased. 

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