Will Investors Start Locking in Gains as Nasdaq 100 Tracks for 10-Day Streak?
Anticipation of a Fed interest rate cut continues to build. Let's see if that triggers some prudent profit-taking.
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The Federal Open Market Committee begins its two-day meeting on Tuesday, which will culminate with the release of its policy decision at 2 p.m. ET on Wednesday. Fed Chair Jerome Powell will conduct a press conference 30 minutes later.
This FOMC meeting will be a particularly interesting one as an appeals court blocked President Trump’s effort to remove one member, but Congress appointed Trump’s senior economic advisor as a new member. One key issue that will impact the reaction to the new FOMC policy will be whether the decision is driven by political issues rather than just economic data.
Market participants have been anxiously anticipating a dovish Fed for months. Hopes of a market-friendly Fed gained traction in August after Powell spoke at Jackson Hole and have continued unabated as economic data confirmed a weakening employment market and limited inflationary pressure.
Fed Fund futures indicate 100% certainty of at least a quarter-point cut on Wednesday and even a slight chance of a half-point cut. The main issue will be the degree to which Powell and the Fed indicate that further rate cuts are coming.
Ironically, the more convinced the market becomes that a series of rate cuts is coming, the greater the danger that the good news is already fully baked into the market. The danger of a "sell the news" reaction builds each day as the market trades higher and higher with no new news or developments.
The indexes are indicated higher again on Tuesday morning, and it will be very interesting to see if that triggers some profit-taking as the big event is about to occur. The prudent move for many investors is to lock in some large recent gains before the Fed announcement, just in case there is a "sell the news" reaction.
The biggest positive going for the bulls at this point is that the contrary view is that the market will become even more extended on the Fed rate cut. It is illogical, but the market beast often does its best to do what it least expected. Betting against a positive reaction to positive news is too obvious to work easily.
At the time of publication, Rev Shark had no positions in any securities mentioned.
