Exciting week ahead
FOMC meeting in focus on Wednesday
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Despite initial volatility, the market maintained stability, recovering from an early week low to close up 4% by week's end, following Wednesday’s CPI data which confirmed inflation at 2.5%.
The Federal Reserve is expected to announce its first interest rate cut in four years on Wednesday, signaling a pivotal shift in monetary policy amid subsiding inflation and a softening labor market.
Expectations are oscillating between a 25bps and a 50bps rate cut, with increasing likelihood of a 50bps reduction as rumors suggested the Fed's consideration of deeper cuts, impacting market pricing and sentiment.
We will analyze the impact of the decision immediately on Wednesday after FOMC, for our paid subscribers:
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Last week’s performance
Market wrestled with direction, fluctuating initially before settling into a pattern post-Wednesday's CPI release, which confirmed inflation at 2.5%. Despite a vigorous attempt by the bears to initiate a sell-off at the open, the market held steady above the critical 5,400 support level, bouncing from a low of -1.5% to close up 1% on Wednesday, and ultimately ended the week up by 4%.
Speculation around the Federal Reserve's upcoming actions intensified, with a split expectation between a 25bps and a 50bps rate cut. However, mid-week rumors suggested the Fed might lean towards a 50bps cut, propelling the market to price in potentially deeper cuts by year's end. With the S&P 500 aiming for 5,650, the stage is set for Wednesday's FOMC meeting, where the Fed's dot-plot and rate decision will be crucial. Depending on their stance, we could see a significant market rally or a recalibration if the outlook is more restrained.
As for this week, it will remain highly focused on the Federal Reserve, which is expected to announce an interest rate cut—the first in four years—during its Wednesday meeting. This decision, along with Chair Jerome Powell's insights during the subsequent press conference, will be pivotal for assessing future monetary policy and its implications for the markets.
How to position for all this? We covered all options in the weekend post, have a look:
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