Going into the end of July 2019, investors expected the U.S. Federal Reserve would cut short-term interest rates by a quarter point, which they anticipated would be the first of a series of at least three rate cuts between now and the end of 2020-Q1.
While the Fed delivered on a quarter-point rate cut on Wednesday, July 31, 2019, investor expectations for the future were shaken when Fed Chair Jerome Powell uttered the words "it's not the beginning of a long series of rate cuts" at the press conference following the announcement of the rate cut, which immediately caused investors to shift their attention toward the nearer-term future as the odds of additional rate cuts in upcoming quarters came into question.
That shift in expectations kicked the S&P 500 (Index: SPX) onto a new, negative Lévy flight, the fourth for 2019, as investors appear to have shifted their focus from considering whether the Fed would cut rates a third time in 2020-Q1 to whether they might cut the Federal Funds Rate at all in 2019-Q4.
While Powell's words started the S&P 500 on its latest quantum random walk, President Trump's surprise action to impose new tariffs on Chinese exports to the U.S. whipsawed the market and prompted investors to focus greater attention on the nearer-term quarters, where suddenly, the probability of additional Fed rate cuts being announced during them rebounded.
You can see some of that activity in the animated table below, where we're experimenting with overlaying the CME Group's FedWatch Tool's indicated probabilities of rate cuts at various upcoming Fed meetings from the market close on Wednesday, July 31, 2019, where they ended the week on Friday, August 2, 2019:
Here are the major market-moving headlines that stood out to us during the week that was, which was pretty quiet until the Fed shook up the market's expectations on Wednesday, July 31, 2019:
Monday, July 29, 2019
- Oil edges up on prospect of U.S. interest rate cut - Not really, since investors have been expecting a rate cut for weeks, but apparently, some reporters had too much space to fill with actual reporting.
- Bigger trouble developing
in Chinaall over:
- Trump urges Fed to do more than a 'small rate cut'
- That bad? How the U.S. economy stacks up to past rate cut cycles
- US STOCKS-U.S. stocks back off record highs ahead of Fed meeting
Tuesday, July 30, 2019
- Oil rises on expectations of Fed rate cut, another U.S crude drawdown - This headline got it half right!
- A Fed interest rate cut is in the bag. What then?
- Bigger stimulus developing in China: China will boost economy but won't use property market for stimulus: Politburo
- Bigger trouble developing in China: China's service sector activity grows at slower pace in July: official PMI
- Tech pulls Wall Street lower on Trump trade warning
Wednesday, July 31, 2019
- Bigger trouble developing in China all over:
- Bigger stimulus developing in China all over:
- Fed Chairman Powell Calls Rate Cut a 'Mid-Cycle Adjustment'
- S&P 500 posts biggest drop since May after Fed cut, Powell comments
Thursday, August 1, 2019
- Oil slumps 7% as Trump announces additional tariffs on Chinese imports
- Trump: U.S. will hit $300 billion worth of Chinese goods with 10% tariff
- Fed's mild rate turn crushes U.S. inflation expectations
- Wall Street dragged down by Trump trade tweet
Friday, August 2, 2019
- Oil gains about 3%; records loss for week after Trump tariff threat
- U.S. economy is adding plenty of jobs, but not hours for workers
- Fed minions continue sowing new reign of confusion:
- S&P 500, Nasdaq close out worst week since December on trade worries
If those headlines aren't enough for you, Barry Ritholtz succinctly summarized no fewer than 8 positives and 8 negatives he found during the week's economics and market-related news flow.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.