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S&P 500 at 1,000

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Is today's current 9.5 point decline for the S&P 500 Index (SPX.X) 1,000 -0.96% decline a response to today's economic data, or is it Triple Witching expiration related?

I can't, nor will I try and make that call. I don't think anyone can, but many will try.

Economic data reported during today's trade has seen the May leading indicators show a 1% gain, which was better than the 0.7% gain forecasted by economists, while the more regional Philadelphia Fed report for June showed a rebound from May's -4.8 reading to +4.0 in the latest month, which was slightly below economist's forecast of 4.1. While a rebound in the "Philly Fed" was encouraging to some economists, others said it still shows a rather anemic economic recovery at hand.

While the major indexes hover at their lows of the session with the Dow Industrials (INDU) 9,212 -0.87% lower by 82 points, and the tech-heavy NASDAQ-100 Index (NDX.X) 1,240 -0.56% off 7 and Tracking Stock (AMEX:QQQ) $30.87 -0.09% slipping 5 cents, the current trade in the S&P 500 at 1,000 certainly would mark a nice level for index expiration. We will see as there can be lots of hedges yet to come off (if there are some) and shorter-term traders should be prepared for some volatility.

While it has been an intra-day trend lower for equities, the bond market action has been anything but trending and showing some intra-day swings, which certainly hints a market that is very uncertain about what the Fed will do at next week's 2-day FOMC meeting, which begins on Tuesday and a decision on a potential Fed rate cut coming on Wednesday at approximately 02:00 PM EST.

July Fed Funds futures (ff03n) have jumped sharply to new contract highs of 99.175, and now depict a market that has quickly changed its mind since yesterday toward a 50 basis point cut next week. August Fed Funds futures (ff03q) 99.195, which would encompass next weeks June FOMC meeting and its next meeting held in August were predicting a 50% chance of a 50 basis point rate cut by August at yesterday's close, but have jumped to 80% chance in today's trade. It is rare to see such a sharp move on a day to day basis, and recent days trade and economic data certainly give the look that there is greater anticipation building toward next week's FOMC meeting.

Shorter-dated maturities had found buyers at today's open and extended those gains. However, earlier selling in the longer- dated 10-year and 30-year has been reversed, with the 10-year YIELD ($TNX.X) now lower by 3 basis points to 3.33% after early selling saw the benchmark bond's YIELD rise to 3.422%. The longest-dated 30-year Treasury still hold fractional weakness, with YIELD ($TYX.X) still higher by 1.4 basis points at 4.403%.

Early gains in the dollar, as depicted by the U.S. Dollar Index (dx00y) 93.00 -0.18% have been erased. In this morning's 11:00 Update we were reviewing some of the things discussed in last night's Index Trader Wrap regarding what may be at play with the dollar/bond and equities, and in just the past 2-hours, the shift in dollar/bond trade still finds financial sectors weak, but the action from the 10 and 30-year YIELDS have the Dow Jones Home Construction Index (DJUSBH) 468.31 +0.1% bidding back into positive territory after a morning low of 458.98.

Again... economic? Or Triple Witching expiration. I can't say with any degree of certainty, and those who say they can, I would have to take those comments with a grain of salt.

Jeff Bailey

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