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Ahead of the Fed: What Will Happen Tomorrow?


What happens if the Fed does 50? What happens if it does nothing?


Here are some random (and not so random) thoughts and questions that I'm having ahead the Fed meeting tomorrow.

  • Large shorts have been laid on and layered on ahead of this meeting as everyone thinks it will be the most obvious sell the news reaction of the year so far.

  • Many times the crowd is right and they create a self fulfilling prophecy, which has to be respected. But how much money is in a very crowded short trade on the whole market, especially levered to the Q's?

  • QID volume (Naz 2-1 short lever) has remained pretty high through the quiet last two weeks as the market has edged up slightly. This could indicate quite a bit of additional shorts that are not in reported numbers.

  • Many small/mid cap names (even tech's) have sold off with many at or near 2005 lows again, and many are at or below longer term valuation lows. Has this group already priced in recessionary conditions ahead of time? If so, is that correct?

  • I ran a few screens on this group and was shocked so many names with solid sales growth, many with higher EPS growth, and extremely low price to sales, book, etc... The point is sometimes these stocks bottom out before rest of market -- so have they bottomed or signaling what the rest of market might yet experience?

  • Can the market rally on a 25 bps cut?

  • Is the market focusing too much on the Fed Funds move and not enough on a further discount window cut(s)?

  • Who needs the market to move in their direction more -- the shorts or the longs?

  • What happens if the Fed does 50?

  • What happens if it does nothing?

  • Will the following Fed language matter more or less this meeting?

  • How much are the commodity bulls trying to jawbone the Fed into believing that inflation is a bigger risk than reality? How much are they trying to jawbone the Fed into inaction or a smaller rate move?

  • Or, has too much been made of this meeting already and will the following market response be more muted than most expect?

Any thoughts from other Professors?

Check out some other great commentary ahead of tomorrow's Fed statement:

Sunset Grille: The FOMC and Brokerage Earnings To Shape the Road Ahead by Todd Harrison
The Day After Tomorrow: The Fed, Energy and Charts to Watch by Fil Zucchi
Surprising Trends in Federal Reserve Data by Minyanville Staff
Why to Go Golfing on Fed Days by Jeff Macke

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No positions in stocks mentioned.

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