The market managed an energetic bounce late on Monday morning, but there was no follow-through in the early going on Tuesday.
The primary driving force right now is positioning in front of the Federal Reserve's interest rate decision at 2 p.m. ET Wednesday, followed by a press conference with Fed Chairman Jerome Powell.
It is widely expected that the Fed will raise rates by a half-point, but the trillion-dollar question is to what degree the market already has discounted this move. The market has been dealing with an increasingly hawkish Fed for many months now, and a series of interest rate hikes have already been priced into both bonds and equities to some degree. Bears tend to believe that the market still has not fully discounted the potential for more inflation, a potential recession and a more hawkish Fed.
The bulls tend to believe this market has already priced in a large amount of negativity and is close to finding some support. We have yet to see technical action that supports that thesis, but there are a few little things developing that are favorable. The main thing is that there is some relative strength in the worst-hit stocks. New 12-month lows are still piling up, but the downside momentum in secondary stocks has declined as the selling in big-caps and indexes has accelerated.
The thing this market is missing is positive price action to confirm the bullish thesis that the worst has already been priced in to the market to some degree. Traders are looking for a countertrend bounce, but whether that can gain some strength and power is going to depend on whether market players believe a hawkish Fed has already been anticipated.
Watch for pushing and shoving as traders position for the Fed on Wednesday. We also have an interesting political development with news stories that the Supreme Court will overturn Roe vs. Wade. While this has no direct market impact, it may have consequences for the mid-term elections, and that could have market implications. We will need to see how that develops.
We have a mixed open on the way, but anticipation for a spate of volatility on the Fed announcement will be building.
