Fed could spark 10% rally on 50 basis points

  • The S&P 500 could rise 10% on Wednesday if Federal Reserve Chairman Jerome Powell turns pacifist, according to JPMorgan.
  • The bank said a potential rally could occur if the Fed raises interest rates by 50 basis points instead of the expected 75.
  • “This is the least likely and the most optimistic,” the JPMorgan trading desk said Monday.

The Federal Reserve may send the stock market sharply higher on Wednesday when Chairman Jerome Powell announces his rate hike decision at the Federal Open Market Committee meeting.

according to JP Morgan trading desk Standard & Poor’s 500 It could rise as much as 10% if the Fed raises rates by just 50 basis points and holds a docile press conference. The market currently sees an 88% chance that the Federal Reserve will raise interest rates by 75 basis points on Wednesday, according to FedWatch Tool.

A double-digit rally on Wednesday would see the market test its previous one-day record high last seen in 2008, when the S&P 500 rose 11.6% on Oct. 13 amid the heightened volatility of the major financial crisis. A 10% rise on Wednesday could send the S&P 500 index to 4258 based on Monday’s closing price.

Either way, the market has a good chance of going higher on Wednesday and the week after based on previous meetings this year. Of the six previous FOMC meetings in 2022, markets rebounded 50% of the time before Fed decision day, rose 50% on Fed decision day, and rose 67% a week later.

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The market could still move higher if the Fed sticks to its expected 75 basis point interest rate hike on Wednesday, according to the note. The bank estimates a 4% to 5% rise in the S&P 500 if Powell uses a dovish tone in his press conference despite a 75 basis point rate hike.

But in the most likely scenario, JPMorgan expects the S&P 500 to be lower or higher on Wednesday if the Fed raises interest rates by 75 basis points and Powell sounds a hawkish tone at his press conference.

“This is the most likely outcome with Powell retaining the calligraphy for the December and 2023 meetings while emphasizing the current high risks for inflation. Even with the hawkish press conference, we may see language that a 75 basis point step down is coming, which softens the blow,” JP said. Morgan.

In a more bearish scenario, the bank expects the S&P 500 to fall 8% if the Fed raises rates by 100 basis points and Powell sounds a hawkish tone at his press conference, as this may indicate that the Fed is Still worried about taming inflation.

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