For what it's worth, the futures for the major indices are presaging a higher start for the cash market. That positive indication is nice to see, yet it looks a little self-serving in front of the FOMC policy decision and updated projections that will be released at 2:00 p.m. ET.
We say that knowing the market is hopeful the Fed will toss it a carrot of some kind with its rate-hike projections for 2019, and we say that knowing the S&P 500 finished on an uptick yesterday after setting a new low for the year, once again escaping with a finish above the February low.
We say that, too, knowing this market is desperately waiting for that big bounce from an oversold condition to materialize and thinks it must be imminent because the S&P 500 has held support twice now at the February low on a closing basis and because, well, the S&P 500 is down 7.8% this month alone.
It's not an unreasonable thought, yet we dare to say the pre-open bias wouldn't be what it is if the market didn't think it was going to be tossed a lifeline today by the Fed.
That's because there have been some corporate and economic developments that have continued to validate the concerns about the growth outlook that have contributed to the S&P 500 falling 12.6% since the start of October and helped push the S&P 500 to a new low for the year during yesterday's trading.
Enter FedEx (FDX) and Micron (MU), which reported fiscal quarterly results after yesterday's close that were replete with earnings warnings wrapped up in weaker than expected demand. Enter Japan, which reported a scant 0.1% year-over-year increase in exports for November.
On any other day, that might have been enough to send the futures tumbling. On this day, it has been held so far in isolation. Shares of FDX are down 7.7%; shares of MU are down 7.9%; and Japan's Nikkei declined 0.6%.
The S&P futures, though, are up 15 points and have been calm, cool, and collected for the most part through the overnight trade.
We can only assume that composure is grounded in a hopeful, wait-and-see perspective in front of the FOMC decision.
Rather than reinvent the preview wheel, I'll close out today's Page One with a rehash of the view to that decision I provided yesterday's on Briefing.com's Live In Play page.
"The view to the FOMC decision on Wednesday is a fairly wide open one. It's not a slam dunk that the Fed will raise the target range for the fed funds rate. The CME FedWatch Tool shows only a 71.5% probability of that being the case, which leaves ample cushion for a surprise.
The updated summary of economic projections and dot plot, meanwhile, have created a guessing game, too.
The market's assumption, based on recent remarks from Fed Chair Powell and other Fed officials, as well as some softening economic data and the reeling stock market, is that the dot plot will show Fed officials are dialing back their rate-hike projections for 2019. The projection coming out of the September meeting called for three rate hikes.
Will it be enough, though, if the dot plot reduces the projection to two hikes -- or even one for that matter -- when the fed funds futures market doesn't think there will be any rate hikes by the Fed in 2019?
That is a big question, and so is this: will the market be placated if all it receives is a more conservative rate-hike outlook from the Fed or might it also need to hear some allowance for possibly pulling back on the Fed's quantitative tightening program?
We're beginning to think it is driving for more than just a softer rate-hike outlook. After all, the assumption that the Fed will temper its rate-hike projections was in the market last week and yesterday, and yet, the S&P 500 still cascaded to test its February low on Monday.
The inference here is to be careful of a knee-jerk rally in the stock market if the lone basis for it is a dot plot showing projections for fewer rate hikes in 2019. That might be nice to hear in its own right, yet it isn't bound to be lost on this sensitive market that the quantitative tightening action is still creating tighter financial conditions in its own right.
The Fed could possibly press ahead with a rate hike today, but if it wanted that to be interpreted wholly as a "dovish hike," then it will seemingly need to do more than just soften its rate-hike projections. On that note, the Fed's balance sheet is in play as a potentially more important market-moving catalyst."