SPY and QQQ Volatility Surges Amid Fed Rate Cut Before Trump-Xi Meeting
The recent Federal Open Market Committee (FOMC) meeting resulted in interesting developments for the S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQ). The S&P 500 ETF experienced a slight loss, closing in the red, while the Nasdaq 100 ETF recorded a modest gain, closing in positive territory.
Fed Rate Cut Overview
The Federal Reserve voted to cut interest rates by 25 basis points, marking the second reduction of the year. Out of the 12 voting members, 10 supported the cut. Fed Governor Stephen Miran preferred a more aggressive 50 basis point cut, while Kansas City Fed President Jeff Schmid advocated for keeping rates unchanged.
The Fed described the current economic expansion as moderate, with inflation remaining somewhat elevated. The unemployment rate has increased slightly but is still considered low.
Comments made by Fed Chair Jerome Powell spurred market volatility. He indicated that there are differing opinions within the Fed regarding potential further cuts in December. Following these remarks, the likelihood of an additional 25 basis point cut by year-end decreased significantly, dropping from 90.5% to 55.5% according to CME’s FedWatch tool.
Market Reactions
The initial market reaction to Powell’s comments was a sharp decline in stock prices; however, much of these losses were recovered by the end of trading. Powell emphasized the importance of inflation and labor market data in future decisions. He also mentioned that artificial intelligence could contribute to rising layoffs, potentially impacting job creation.
Upcoming Trump-Xi Meeting
In parallel with economic developments, President Donald Trump is scheduled to meet Chinese President Xi Jinping on Thursday at 11 a.m. Eastern Time. The agenda is expected to cover several critical issues:
- Rare earths
- Soybeans
- Curbing illegal fentanyl shipments
- Semiconductors
Prior to the meeting, Trump expressed optimism about a potential U.S.-China trade deal. He stated, “We’re going to be, I hope, making a deal. I think it will be a good deal for both.”
U.S.-South Korea Trade Agreement
Additionally, Trump confirmed a trade deal with South Korea that will lead to $350 billion in investments in the U.S. over several years. This agreement includes:
- $200 billion in cash investments, capped at $20 billion annually
- $150 billion allocated for a shipbuilding partnership
In exchange, the U.S. will reduce the tariff rate on South Korean automobiles from 25% to 15%.
Overall, these developments highlight a period of increased volatility for SPY and QQQ amid pivotal economic decisions and international trade discussions.
