The stock market is on the brink of hitting all-time highs once again, but uncertainties loom as investors await the Federal Reserve decision and key inflation data. Traders are hunkering down for added volatility ahead of these macroeconomic events, with big tech rebounding and European shares sliding after French President Macron's legislative vote call.
The Fed is expected to keep borrowing costs steady, but there is less certainty surrounding officials' rate projections. The outcome of the closely watched “dot plot” could signal two cuts, one cut, or no cuts at all. This uncertainty has left investors on edge as they try to predict the central bank's next move.
Despite the solid jobs report on Friday, traders have dialled back their expectations for rate cuts, now pricing in the first 25 basis points of easing in December instead of November. Wall Street's top trading desks are warning investors to brace for potential market turbulence after the CPI data and Fed rate decision.
With the S&P 500 hovering near record levels, the options market is betting on a 1.3% to 1.4% move in either direction by the end of the week. Meanwhile, Morgan Stanley cut Advanced Micro Devices Inc., citing lofty investor expectations for the chipmaker's AI business.
As uncertainty grips the market, investors remain divided on the potential outcomes of the Fed's decision. Whether the benchmark index could drop, trade sideways, or plunge significantly depends on a multitude of factors, including inflation, earnings, and interest rates.
Given the current market climate and the impending Fed decision, investors are advised to tread cautiously and prepare for potential market swings in the days ahead. The outcome of the Fed's decision could set the tone for the market's direction in the coming months.