Federal Reserve interest rate decision day is always an important event for the market but the decision this week will be particularly consequential. The market is widely anticipating a rate cut of a quarter-point when the announcement is made on Wednesday afternoon. The reaction to this report has the potential to determine whether the current uptrend continues or whether a top may form.
This appears to be a classic 'sell the news' setup but what makes the situation difficult is the market's tendency to rally on the Fed even when the news is already expected. The response to a dovish Fed is to keep on buying even when it can be argued that the news is already fully discounted.
The Fed will be the focus this week but there will also be many more earnings reports to consider. Most of the major big-cap names have reported but Apple (AAPL) is on the docket Tuesday night and everyone's favorite 'fake meat' play, Beyond Meat (BYND) will be of particular interest tonight.
Earnings season shifts to smaller cap stocks for the next couple weeks. These smaller stocks may not have much impact on overall market direction but they do offer interesting trading opportunities. Since they are not as heavily followed as their big cap siblings they offer more surprises and bigger responses. These reports can sneak up on you if you aren't careful so stay aware of the calendar.
In addition to earnings, we are likely to hear some reports about the progress with China on a trade deal. Trump administration officials are in China this week and will likely make the usual comments about how there is progress being made. The market has grown skeptical after dozens of such comments and it will likely take more than the usual platitudes to drive the market higher. The buy programs will dance around to headlines for a trade but that won't last long.
The S&P 500 is sitting at an all-time high as we kick off the week but what has been most notable about the action is that it is more complacent than euphoric. There is confidence that a dovish Fed won't allow the market to drop much but with earnings season coming to an end and slow August trading about to start, many market players are wondering if upside momentum can build.
The Fed news on Wednesday will shake things up this week. I'll be focused on managing my individual positions and will be looking for earnings reports to create some new opportunities.