The financial world is holding its breath as the Federal Open Market Committee (FOMC) prepares to announce its interest rate decision on Wednesday. This event is poised to be a pivotal moment, with investors anxiously awaiting the first federal funds rate cut in over four years. However, the market is sharply divided on the magnitude of this anticipated cut, with a tug-of-war between two distinct possibilities.
Traders are currently assigning a 59% probability to a 50-basis-point cut, while a 41% chance is placed on a more modest 25-basis-point reduction. This debate over the cut’s size carries immense weight, as it could trigger significant market reactions. A 50-basis-point cut, perceived as a strong signal that interest rates are overly restrictive, might fuel optimism among investors, driving stock prices higher. This could also lead to heightened expectations for further rate cuts in the months to come.
Conversely, a 25-basis-point cut might disappoint investors who are banking on a more aggressive measure. This could lead to a dampening of market sentiment and potentially cause stock prices to dip. The S&P 500, a key indicator of the U.S. stock market, has exhibited a high sensitivity to Fed policy decisions. Since the start of 2022, the index has experienced an average move of plus or minus 1.3% during FOMC events, reflecting the market’s vulnerability to these announcements.
To better understand the potential impact of the FOMC decision, Goldman Sachs equity analysts, including John Marshall, delved into historical data. They analyzed stock movements during the first rate cuts in the previous three Fed easing cycles (September 18, 2007, July 31, 2019, and March 3, 2020). Their findings highlight the average moves of several key S&P 500 stocks with liquid options during these periods:
| Rank | Name | Absolute Average Move |
|—|—|—|
| 1 | Caesars Entertainment Inc (CZR) | 5.9% |
| 2 | Nvidia Corp (NVDA) | 5.5% |
| 3 | Capital One Financial Corp (COF) | 4.6% |
| 4 | Charles Schwab Corp (SCHW) | 4.6% |
| 5 | Mastercard Inc (MA) | 4.5% |
| 6 | Fortinet Inc (FTNT) | 4.3% |
| 7 | Marriott International (MAR) | 4.2% |
| 8 | American Express Co (AXP) | 3.8% |
| 9 | Newmont Corp (NEM) | 3.7% |
| 10 | Deere & Co (DE) | 3.6% |
| 11 | BlackRock Inc (BLK) | 3.6% |
| 12 | Texas Instruments Inc (TXN) | 3.5% |
| 13 | 3M Co (MMM) | 3.3% |
| 14 | Bank of America Corp (BAC) | 3.2% |
| 15 | JPMorgan Chase & Co (JPM) | 3.2% |
| 16 | Oracle Corp (ORCL) | 3.0% |
| 17 | Abbott Laboratories (ABT) | 3.0% |
| 18 | Starbucks Corp (SBUX) | 2.9% |
| 19 | Visa Inc (V) | 2.7% |
| 20 | Verizon Communications Inc (VZ) | 2.3% |
This analysis underscores the potential for significant market volatility in the wake of the FOMC’s decision. As investors brace for the announcement, all eyes will be on the Fed’s chosen path, and the market’s subsequent response will be closely watched.
