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

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

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

fed funds

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

eurodollar

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

dollar index

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

S&P 500, spx

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 (AMATWealth Strength IndexAAPL is Extremely Up and trending Up)

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.  AMATWealth Strength IndexAAPL is Extremely Up and trending Up 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 AMATWealth Strength IndexAAPL is Extremely Up and trending Up, LRCXWealth Strength IndexAAPL is Extremely Up and trending Up, and TER could benefit. Strong North America Semi Billing’s Data

applied materials, amat

applied materials, amat

Microsoft (MSFTWealth Strength IndexAAPL is Extremely Up and trending Up)

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

microsoft, msft

microsoft, msft

Netflix (NFLXWealth Strength IndexAAPL is Extremely Up and trending Up)

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 NFLXWealth Strength IndexAAPL is Extremely Up and trending Up will go to $400; it won’t. I think it settles out in the low $340.

netflix, nflx

netflix, nflx

Dell (DELL)

Dell continues to rise, and $60 looks possible now.

That is going it for now.

-Mike

This article first appeared on Mott Capital.

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.