Will The Fed Hint At June Hike Or Surprise On The Dovish Side?

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Includes: SPY, VTI
by: Chris Ciovacco

Summary

Base case for Wednesday's Fed meeting.

Case for new highs versus the case for new lows.

Favorable Fed scenario for risk assets.

Fed Takes Center Stage (Again)

The base expectation is for the Fed to take no action in terms of interest rates this week. The market (NYSEARCA:SPY) will be focusing on language related to the possibility of a June rate increase. From Reuters

U.S. Federal Reserve policymakers are expected to hold interest rates steady when they meet this week, but may tweak their description of the economic outlook to reflect more benign conditions, leaving the path open for future rate rises.

Case For New Highs vs. Case For New Lows

This week's stock market (NYSEARCA:VTI) video covers several timely topics related to the bull vs. bear debate:

  1. Similarities and differences: now versus NOV-DEC 2015 peaking period.
  2. NYSE Fibonacci retracement update.
  3. Fundamental comparisons to 2000 and 2007.
  4. VIX Fear Index near key level.
  5. Rare market events 2013-2016.
After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

The Bullish Scenario For Stocks

As outlined in detail on April 20, in late December/early January when the Fed talked about the possibility of four 2016 interest rate hikes, numerous asset markets did not respond favorably. Given those events remain fresh in the minds of central bankers, it is possible the Fed takes a surprisingly dovish tone this week, which could help propel risk assets higher. From Reuters:

Many Fed officials remain spooked by the steep stock market drop earlier this year and by weak first-quarter U.S. economic data. Concrete signs of higher inflation and growth may be needed before the FOMC, the Fed's policy committee, continues with the projected gradual path toward more normal levels of interest rates.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.