FED will attempt to sound as dovish as possible but not committing to future rate cuts. They may succeed.
From CNBC.com:
In addition to the cut, the Fed on Wednesday is expected to signal its intentions about future rate cuts. The market is pricing in a rate cut for this week, then a pause, followed by a rate cut for next year.
But many economists do not expect the Fed to keep on cutting, as some market pros expect it to. There is no new economic or interest rate forecast from the Fed, so its communications will be limited to the post-meeting statement and comments from Fed Chairman Jerome Powell at his press briefing.
“From our point of view, you’re likely to get a sell-off based on a Fed disappointment,” said Julian Emanuel, chief equity and derivatives strategist at BTIG. He said fed funds futures are signaling a 50% chance for a rate cut by March, but many economists, like those at Goldman Sachs, expect this Fed cut to be the final one and it could signal it’s finished.
Emanuel said he expects the Fed to cut a quarter point, but then back off promising any more cuts, though it may keep the door open just slightly. “We think the market has discounted a lot of positive news, and it’s likely to be shocked by this now,” he said.
Emanuel said a sell-off could take the S&P back down to the 2,875 level. The benchmark traded as high as 3044.12 on Monday.
“There’s the potential for the market to pull into the 200-day moving average in the next couple of weeks, if the market is sufficiently spooked by the Fed,” he said. The 200-day moving average was at 2,877 Monday.
Emanuel said that the downside will be limited because of the Fed’s commitment to keep liquidity in the markets. Following the spike in repo rates, the Fed has taken action to keep the money markets swimming in cash, by expanding the size of its open market operations and also to increase its balance sheet by adding Treasury bills to its holdings.
The repo market is literally the basic plumbing of the financial markets. It’s where banks go to fund themselves short term, and the concern is any stress in that market could filter through to other corners of the credit market. Analysts say the recent problems in the market were most likely a cash crunch, not a deeper problem, and the Fed has helped by expanding the size of its overnight repo operations and created long-term facilities.
Even so, disappointment about Fed commentary this week could spark a short term sell-off. Emanuel has a target of 3,000 on the S&P for year-end, but he says his number could be too low. He expects the S&P 500 to head to 3,250 next year.
“There are still plenty of people who think there’s going to be a recession next year. They may all be underweight stocks, but the fact is if the Fed is going to talk down the likelihood of a rate cuts, those people are not going to be buyers of stocks. They’re going to be sellers,” he said.
https://www.cnbc.com...time-highs.html