What can we expect for the markets today?
Since today is the FOMC STIR announcement at 1415 EDT, the market, if it is true to history, will remain relatively quiet (low volume and range) until the 1415 hour release. From there depending on the amount of the cut and then more importantly the wording of the FOMC about future rate cuts or monetary policy concerns.
This means that if the rate cut which everyone is expecting and is already priced into the market with yesterday's big rally is 50 basis points or 1/2% on both the Fed Funds Rate taking it to 1.0% and then Discount Rate taking it to 1.25%.
If the FOMC doesn't cut rates or less than 50bp, the market will give up a lot of the 100 pts it made yesterday (I'm speaking of the SP 500 value) taking it back to the 850-860 level.
If the FOMC cuts the expected 50bp, but says that it will not do more cuts in the future, the market could also tank, but not as much probably to the 875-880 level.
If the FOMC cuts MORE than the 50bp, and says that more rate cuts are not out of the questions, the market could rally to the SP 500 975 level before finding some resistance.
If the FOMC does what is expected, a 50 bp cut in both key interest rates, and does not discuss future rate cuts and does not talk about inflation, etc. the market could just go sideways.
Remember, the Fed doesn't have many options left if it cuts too far since you can't go lower than 0% and they don't want to have to deal with that problem. Bernanke is a student of the depression and he doesn't want to put the US economy into a tailspin like FDR did with STIR so low that capital flees the US.
More after the 1415 rate cut announcement.
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