A Federal Reserve rate cut on Wednesday could supercharge an already strong stock market. JPMorgan’s trading desk says that, when the Fed lowers its benchmark lending rate while the S & P 500 is within 1% of its all-time high, the index soars on average by nearly 15% over the next year. The traders also noted that this trend is apparent in the year since the Fed began cutting rates a year ago. “Since then, the S & P 500 is up around 17%. … These types of returns are consistent with the ‘Fed cuts in a non-recessionary environment’ backdrop that we are expecting in the months ahead,” the JPMorgan traders said. The S & P 500 closed above 6,600 for the first time on Monday and ended the day just 0.1% below its intraday record of 6,619.62 reached the same day. .SPX YTD mountain SPX year to date A rate cut from the Fed is all but certain. The question heading into Wednesday’s announcement is how big the reduction will be. The CME Group’s FedWatch tool shows investors are pricing a 96% chance of a quarter percentage-point rate cut. They see only 4% odds of a bigger half-point cut. But while the long-term market reaction to lower rates is always favorable, near-term moves could be choppier. As Adam Crisafulli of Vital Knowledge notes: “Sentiment right now is mostly bullish, but people are nervous about the Fed decision triggering a quick ‘sell the news’ response (this is our concern too, although the most ‘painful’ outcome will be a dovish surprise that catalyzes an aggressive pro-value/cyclical, anti-tech/momentum rotation).” JPMorgan’s trading desk also noted on Monday that stocks could be volatile depending on the Fed’s tone .
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