Stocks fell today as pre-FOMC jitters had investors feeling nervous. The Dow, S&P, and Nasdaq Composite all tumbled, pushed lower by rising yields. The 10-year rate jumped to 3.60% today, nearly hitting an 11-year high.
The market assumes a 75 basis point hike is coming tomorrow at the conclusion of the September FOMC meeting. And that’s probably what we’ll see.
There’s an outside chance that Fed Chairman Jerome Powell goes with a 100 basis point hike instead – like the 100 basis point rate increase that Sweden’s Riksbank unveiled this morning – but the odds favor a 75 basis point hike.
More important than the hike itself, however, will be Powell’s post-hike press conference. If Powell leans more hawkish than expected in his remarks, stocks could plummet. A more dovish message could just as easily result in a major rally.
“A third ‘unusually large’ hike would be a reversal from the plan Chair Powell laid out in July to slow the pace of tightening, despite little surprise on net in the data,” wrote Goldman economists in a note, arguing the case for a more hawkish Fed.
“We see several reasons for the change in plan: the equity market threatened to undo some of the tightening in financial conditions that the Fed had engineered, labor market strength reduced fears of overtightening at this stage, Fed officials now appear to want somewhat quicker and more consistent progress toward reversing overheating, and some might have reevaluated the short-term neutral rate.”
If Goldman’s right and a “change in plan” is coming, the S&P (as represented by the SPY) could be set for a date with the June lows. The index sunk beneath support (now resistance) @ 3,900 last week and has remained there ever since. The stochastic indicator is showing that the market is oversold.
And, as is the case in bear markets, a bear market rally always seems to be right around the corner. But we won’t get one if Powell delivers a hawkish message tomorrow, oversold or not. Regardless, the market’s short-term trend is still bearish until we see positive price action.
That’s bad news for Rivian Automotive (NASDAQ: RIVN), which set a double top over the last few weeks before breaking its bullish trend (yellow trendline). The stock also closed below the 10-day moving average today and the stochastic indicator suggests it still has plenty of room to fall despite this afternoon’s big move lower.
For those reasons, it might make sense to take RIVN short with a trade trigger of $35.25, below today’s low, as the general market looks toward tomorrow’s critical post-FOMC press conference.
