by Ian Harvey
September 12, 2015
During the week ahead in the stock market all eyes will be on the Fed and their decision in regard to the rate hike. Whatever the Fed does at least half of Wall Street will be surprised and/or disappointed – which will probably lead to more volatility in already turbulent markets.
Obviously there are many different views surrounding the Fed’s move off its zero rate policy, which will be the first time in more than six years, from this week, to October, to December, next year and even some for 2017.
There is a 25 percent chance that it will occur in September based on the futures market and at least half of the Wall Street economists see the central bank announcing a rate hike Thursday, after its two-day meeting. The CME's FedWatch gauge now assigns just a 21 percent probability for a September move, down 24 percent from the day before and 45 percent a month ago. Whereas traders believe December is the most likely date, assigning a 58 percent chance.
Whether the decision to have a rate hike or not, will produce plenty of volatility for the week ahead in the stock market, replacing the volatility that was produced due to the Chinese markets, which has lessened as Beijing has more or less stabilized their economic woes.
There are a great deal of concerns surrounding the Fed move as the rate hike could:-
• Slow down an economy that hasn't fully recovered, and that would be a negative for equities.
• Bring further problems due to a slowdown in Chinese growth which is also weighing on U.S. stocks.
• Have a negative effect in the bond markets -- the yield curve could continue to flatten as investors prepare for a possible rate increase.
• Ignite a second stage of a rally in the dollar – where the currency markets coming off China's devaluation in August are now all about the Fed and the dollar.
If the Fed does not raise rates, it may still suggest that an increase at its October or December meeting is likely.
Market participants say they've already priced in that rate hike, and its exact timing will not shake their long term bets.
The Fed meetings are Wednesday and Thursday and the policy-setting Federal Open Market Committee will issue a statement at 2 p.m. Thursday.
There is little else traders are focused on in the week ahead, though weekend economic data from China and the prospect of another debt ceiling battle in Washington are getting attention.
Also due out in the week ahead in the stock market are a report on August retail sales on Tuesday; the consumer price index, a key measure of inflation, is due out Wednesday; a report on housing starts is out Thursday; and on Friday its quadruple witching, or the expiration date of various stock index futures, stock index options, stock options and single stock futures.
The S&P 500 and Nasdaq composite gained for the week, for their best weeks since the one ended July 17th.
Technically, the end-of-week rally is a subtle but important sign that the bulls are getting stronger and that investors are getting more confident ahead of the Fed meeting.
Since the correction at the end of August, the major averages have swung wildly and only recently turned calmer. The Dow Jones industrial average had its first sub-triple-digit close Thursday since September 3rd.
The S&P 500 has alternated between weekly gains and losses for the last 10 weeks, according Standard & Poor's.
The Dow was up 2.1 percent for the week, to 16,433.09. The S&P 500 was up 2.1% at 1,961.05, whilst the Nasdaq finished up 3.0%, 4,822.34.
The CBOE Volatility Index (.VIX – 27.80), widely considered the best gauge of fear in the market, ended the week down 16.5%.
Earnings for the Week Ahead in the Stock Market
In total, there will be results from twenty-five companies for the week ahead in the stock market, including 4 S&P 500 members. The FedEx (FDX) report Wednesday morning will be the first Q3 earnings report from amongst S&P 500 members, followed by Oracle (ORCL) that same evening and Adobe Systems (ADBE) the following day. All of these early reporters have fiscal quarters ending in August, which we count as part of our 2015 Q3 tally.
For a full list of companies reporting in the week ahead for the stock market …..CLICK HERE…..
Conclusion for the Week Ahead in the Stock Market
The message is “don’t fear the Fed”, as the market is getting stronger – the scare of China's equity market’s dramatic drop is fading – and on a company level there are plenty of opportunities available due to indiscriminate selling.
With this in mind, the recent range-bound choppiness in stocks may continue during the week ahead in the stock market — but a dovish Fed could unleash a powerful rebound through October and set stock prices soaring. Commodities, especially crude oil and gold, could be the big beneficiaries of a "no hike" decision.