The FED meeting starts today and concludes tomorrow at which time we will find out the answer to the question... how much?
Will we see the FED cut rates by .25% or .5%? Current odds put it at roughly a 75% chance of a .25% cut and a 25% of a .50% cut. Odds of a rate cut are 100%. Meaning anything less and the market will drop sharply.
Also the market will be trying to figure out where the FED goes from here... more cuts? Or as one former FED official put it this morning... one and done.
Odds are pricing in about a 20% chance of three .25% cuts this year and a 55% chance that rates end the year .5% lower than they are now.
The risk heading into the FED tomorrow is that we see a sell the news event. I think the market has already priced in much of what happens tomorrow.
With that being said, while I still think we see new record highs later this year, the bears will likely get their chance to pound their chests after the FED tomorrow. Expect a lot of told ya so's and FED trolling.
The $SPY continues to run up against resistance.
The longer we bump up against resistance without breaking through, the greater the odds we see a nice pull back for a refresh. And that's not entirely a bad thing.
My concern though is that seems to be the consensus. That the market will sell off after the FED tomorrow. And of course we have AAPL's earnings tonight which will certainly have something to say about where the market heads tomorrow.
Adding to the drama we have more negative China trade talk this morning. There remains plenty of reasons to be cautious about this market.
The market is expecting a rate cut tomorrow. If the FED doesn't give the market a cut, we could see one of the ugliest days in years. However I sincerely doubt that will happen. I think the FED will go with the .25% rate cut and state their next move will be data dependent.
While this was expected I think the market will decline after the announcement. Even a .5% cut may trigger a sell-off as it may be viewed as a sign the FED thinks the economy is heading quickly in the wrong direction.
Either way the FED will cut rates for the first time since 2008. At the time we were in the middle of the "Great Recession". Three months later the stock market embarked upon a once in a lifetime bull market.
This time around the FED is cutting rates with the unemployment rate at record lows and corporate debt at record highs.
No matter what the cut and the initial reaction, I still think this is bullish for the market and we will see record highs again... and again....
The FED will be signalling lower rates for longer. Which means the cost of capital will remain low for longer. Which means debt will continue to grow. Which means everything that has helped to lift the stock market the last 10 years, will remain in place for more upside. However I think the upside will come with a nice little shakeout first.