The financial world is holding its breath as the all-important Federal Open Market Committee (FOMC) meeting approaches this week. The futures market is firmly predicting a rate cut, with a 100% chance factored in. However, the magnitude of the cut remains a point of speculation, and investors are bracing for potential market turbulence.
One prominent trader, known on Twitter as @TradingThomas3, has cautioned that the week could be marked by significant volatility. According to the trader, the implied move of the S&P 500 Index this week could reach a hefty +/- 96 points, highlighting the anticipated market swings. This FOMC meeting is deemed crucial, as it marks the first potential rate cut since 2020. The odds currently favor a 50 basis-point cut (59%), with a 25 basis-point adjustment trailing behind (41%).
The push for a rate cut has gained momentum following a string of recent economic data pointing to weakening manufacturing and labor markets. Despite the anticipation, @TradingThomas3 also points out that the second half of September historically tends to be bearish for the market.
Looking at past rate cuts, historical trends reveal a mixed bag of outcomes. While the initial rate cut often triggers a short-term bounce, the subsequent trajectory is far from guaranteed. For instance, following the first rate cut in 2001, the S&P 500 briefly rallied before succumbing to a sustained downturn. Similarly, in 2007, the index experienced a short-lived rebound after the rate cut, only to plummet shortly afterward. The 2007 rate cut, aimed at mitigating the housing market collapse, led to a 3.5-week market bounce before a steep decline of over 20%. From the Fed’s pivot point, the index ultimately fell by 57.77%, plunging into correction territory.
As the FOMC meeting draws closer, investors are closely watching market movements and scrutinizing historical trends for clues about the potential path of the market following the anticipated rate cut. The outcome will likely have a significant impact on the financial landscape in the coming months.
