Jeffrey O'Connor, US Head of Market Structure and Sell Side ATS Strategy at Liquidnet, shares his outlook on the key forces driving markets this year.
Rate Uncertainty to Dominate Through Year-End
With the 10-year Treasury yield back above 4.7%, the long end of the curve is sitting at generational highs — and according to O'Connor, that uncertainty isn't going anywhere soon.
"Everything right now is focused on rates and that uncertainty will dominate for the rest of the year," he said.
O'Connor points to the post-financial crisis era — where rates hovered around 1% or lower for nearly eight years — as an anomaly, not the norm. What markets are experiencing now, he argues, is a long-overdue correction.
"What we are seeing now is the big normalization, a reversion to what a functioning economy has historically looked like."
While corporate and economic growth remain strong by most measures, the inflation and rates overhang continues to weigh on companies, forcing them to rethink growth strategies in a sustained higher-rate environment.
Fed vs. Treasury: Who's Really Setting Rates?
The Treasury's recent announcement on buying back long-dated securities drew attention, though O'Connor notes its notional impact was limited. The bigger question it raises, he says, is who is actually steering rate direction — the Fed or the Treasury.
Adding to that tension is Fed Chair Warsh's approach of minimal communication and his stated intention to reduce the balance sheet. With Jackson Hole, the September 11 CPI print, and the upcoming FOMC decision on the horizon, O'Connor believes the picture will become clearer as markets move into the fall.
Equity Volumes Look Strong — But Don't Be Fooled
Summer volumes have finally arrived in both equity and bond markets, but O'Connor urges caution when interpreting the headline numbers. While equity volumes are running around 60% higher than 2024, he argues that growth is structural rather than institutional.
"That growth reflects the omnipresence of non-bank market makers rather than executable institutional depth," he explained, adding that the lack of conviction from traditional institutional traders is making conditions increasingly difficult.
SEC's Order Protection Rule Review Draws Industry Scrutiny
On the market structure front, the SEC's comment period on rescinding the order protection rule closed this week, drawing considerable attention across the industry. O'Connor notes that while the intent behind the review is broadly supported, the potential consequences are a serious concern.
"If the rule were rescinded in full, it would be the most significant market structure change since Reg NMS in 2005-06," he warned.
