Title: Federal Reserve Rate Cut Odds Surge to 50% - Stock Market Set to Reach New Highs
As the Federal Open Market Committee (FOMC) meeting approaches, the probability of a 50 basis points (bps) rate cut has jumped to 50%, a significant increase from earlier in the week. This potential rate cut could lead to a short-term boost in equities, with strategists at BTIG predicting the S&P 500 to hit new all-time highs above 5700 this week, regardless of the decision.
In a recent note, BTIG strategists mentioned that a move to the top side of the rising trend channel could see the S&P 500 reaching around 5800, although they anticipate some pullback in early October. They also warn of a possible "false breakout" post the announcement on Wednesday, especially considering the strong buying activity leading up to the decision.
Despite recent volatility, the S&P 500 has remained relatively flat month-to-date, with historical data indicating weakness in the back-half of September through early October. This could present a buying opportunity in October, just before the U.S. Presidential election.
Drawing parallels to September 2007, when the Fed began a rate-cutting cycle, BTIG notes that credit spreads are currently stable, unlike back then. This suggests that further deterioration would be necessary for a more direct comparison. Additionally, there is potential for small-caps to break out of their current range, but the sustainability of this breakout remains uncertain.
In conclusion, investors should be cautious of a potential false breakout in the stock market following the FOMC meeting, with opportunities for buyable weakness in October. Understanding these market dynamics and historical trends can help individuals make informed decisions about their investments and financial future.