In a widely anticipated move, the Federal Reserve cut the Fed Funds target rate range by 25 basis points to 2%-2.25% at its meeting on July 31. We previewed this decision and its likely impact on intraday volatility in a recent post. Here, we unpack market reaction to the fifth FOMC meeting of the year and compare it to the four prior meetings in 2019.
As in our previous blog post, we found that TRF market share dropped at the time of Fed announcements and then remained lower into the close.
Some aspects of this rate decision were similar to the previous four, such as the pattern of TRF share and the QV increase at 2 p.m.
Yet this decision stood out for the market reaction seen during the press conference. The press conference appeared to be the catalyst for a significantly higher QV and trading volumes, as traders tried to decode Powell’s language on the future path of interest rates. At the time of writing, markets are predicting another 25 bps cut at the September meeting, with some probability of the Fed leaving rates unchanged.
Multi-list options broke nearly all volume records in 2021, driven by the growth of retail participation: daily records (24 of the top 25 volume days of all-time came in 2021), monthly ADV records (April was the only month from 2021 not in the top 12 all-time), and yearly ADV records (37.3M ADV in 2021 was nearly 10M more than in 2020 and double the ADV in 2019).
Increased retail activity in the equities market has affected which stocks are trading the most, and when and where those stocks trade. We’ve previously highlighted retail’s impact on pre- and post-market volume and the opening auction, and now focus on the period immediately after the opening auction. Market participants often avoid this time of day due to higher volatility, an approach worth re-evaluating given current trends.
As the home of ETFs, the NYSE continuously works to strengthen market quality and provide the optimal trading environment for listing and trading ETFs. In April 2021, in service of this goal, the NYSE introduced new requirements and incentives for its industry-leading NYSE ETF Liquidity Program, including the assignment of additional market makers ("Less Active ETF Leads") for new and/or low-volume ETFs.