The Market Is Looking For A 50 Basis Point Rate Cut In July

This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.

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July 18 – Stock mentions: SPY, AMAT, MSFT, NFLX, DELL

Michael Kramer and the client of Mott Capital own MSFT and NFLX

S&P 500 (SPY)

It was a somewhat tricky July 18 for stocks, to be honest. The S&P 500 was higher by about 36 basis points to back 2,995. The day started off with a test of support at 2,975, and when I did my mid-day audio update for the premium subscribers, it had seemed as if there was a solid downtrend forming. However, a dovish tone out the NY Fed President that rates should stay lower for longer and central banks should take preventative measures before a disaster unfolds, got stocks moving higher.

It pushed the S&P 500 to test technical resistance at 3,000 by late afternoon. So we will have to see what happens from here. The good news is that we successfully filled the gap and held support at 2,975. The bad news, for now, is that the gaps at 2,940 and 2,915 remain open.

S&P 500, spy

Rate Watch

The CME rate watch tool now projects a 71% chance of a 50 bps rate cut in July. That is up from 36% this morning.  You can see the point at which that happens on the Fed Funds Futures chart below.

fed funds

You can see the same thing happened in the eurodollar deposit rates as well.

eurodollar

The dollar also fell, which all suggests that the market is starting to take the idea of 50 bps rate cut very seriously now.

dollar index

That was also about the same time that the S&P 500 took off.

S&P 500, spx

Bullard will be speaking tomorrow at 11 am, so expect more dovish commentary on July 19.

With the market expectations rising for a 50 bps cut, it will put the pressure on Powell to cut. It also puts the market in a tight spot, because if Powell does not cut by 50 bps, the market will be very disappointed. That could send stocks sharply lower. So this is extremely important to continue to watch as it unfolds.

Applied Materials (AMAT)

The semis had a very good day on July 18, with Applied Materials leading the way. A Taiwan Semi third quarter outlook helped the group.  AMAT broke out, and it could set up a rise to around $50.75. I had noted a few weeks back that North America Semi Equipment billings was improving, and that stocks like AMAT, LRCX, and TER could benefit. Strong North America Semi Billing’s Data

applied materials, amat

Microsoft (MSFT)

Microsoft is rising after-hours following better than expected revenue and earnings, driven by, you guessed it, their cloud business. MSFT is trading slightly higher because the company doesn’t give guidance until the conference call. But for now, resistance remains around $140.

microsoft, msft

Netflix (NFLX)

For now, Netflix has resistance at $329, but at least it stabilized around $322. Again, I don’t think the stock stays down here for long. However, that is not to say NFLX will go to $400; it won’t. I think it settles out in the low $340. Premium content: Thinking About Netflix With Some Common Sense

netflix, nflx

Dell (DELL)

Dell continues to rise, and $60 looks possible now.  Premium content: Update: Postive Trends For Dell Emerge

That is going it for now.

-Mike

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

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