Analyst Sees S&P 500 Surging Over 10% Tomorrow If Fed Takes These 2 Actions

The market has started the week on a negative note after a strong October. The near-term direction of the market largely hinges on what the Fed’s monetary policy-setting arm — the Federal Open Market Committee — does on Wednesday.

What Happened: The S&P 500 Index could rally at least 10% on Wednesday if the Fed raises rates by a less-than-expected 50 basis points and Fed Chair Jerome Powell tones down his hawkish rhetoric, JPMorgan analysts say, according to Bloomberg.

See Also: Goldman Sachs Raises Peak Fed Rate Estimate To 5% With Hikes Extending Beyond February: Report

A 50-basis point hike and Powell signaling at the post-meeting press conference that the central bank is willing to tolerate “elevated inflation” and a “tightening labor market" is the least likely outcome, JPMorgan trading desk analysts reportedly said in a note to clients Monday.

But it would be the most bullish outcome for equity investors, added the analysts.

That said, JPMorgan’s economists expect the Fed to hand out a fourth consecutive 75-basis-point hike, the report noted.

Other outcomes are less likely, the firm’s trading desk analysts opined.

JPMorgan Draws Up 6 Possibilities:

  • A 50-basis point hike and a dovish press conference: 10-12% rally
  • A 50-basis point hike and a hawkish press conference: 4-5% rally
  • A 75-basis point hike and a dovish press conference: 2.5-3% rally
  • A 75-basis-point hike and a hawkish press conference: down 1% to up 0.5%
  • A 100-basis point hike and a dovish press conference: 4-5% drop
  • A 100-basis point hike and a hawkish press conference: 6-8% drop, retesting year-to-date lows.

Benzinga’s Take: With inflation still ruling high, the Fed may not be yet ready to drop its guard. September consumer price inflation rose 8.2% year-over-year, faster than the 8.1% increase expected by economists. The annual rate of core price consumption expenditure index — the Fed’s preferred inflation gauge — did rise a little less-than-expected 5.1% in September but it may not sway the Fed’s focused inflation-fighting stance.

The strong job market despite the monetary policy tightening could encourage the Fed to risk another 75-basis point increase in November. Analysts and economists have slammed the Fed for acting based on lagging indicators and risking a sharp downturn in growth.
The most the Fed could do at the November meeting is to temper its hawkish tone.

Price Action: The SPDR S&P 500 ETF Trust SPY settled Monday's session down 0.72% at $386.21, according to Benzinga Pro data.

Read Next: Investing For Beginners

Market News and Data brought to you by Benzinga APIs
Posted In: Top StoriesEconomicsFederal ReserveMarketsMediaTrading IdeasInflationJPMorganS&P 500
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

Loading...