Wall Street Week Ahead: Fed meeting grabs spotlight amid volatility comeback

Fri Sep 16, 2016 9:37pm EDT
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By Lewis Krauskopf

NEW YORK (Reuters) - Stock investors next week will focus on the Federal Reserve's monetary policy decision and whether economic growth trends have given the U.S. central bank reason to raise interest rates off of rock-bottom levels.

In the days leading up to Wednesday's policy announcement, market volatility has spiked following two months of relative calm. In the last six trading sessions, the benchmark S&P 500 .SPX has moved at least 1 percent four times, twice up and twice down, whipsawed by shifting perceptions of what the Fed may do.

The CBOE Volatility Index , the most widely followed gauge of near-term investor anxiety, is holding near two-month highs.

Following a week of mixed economic data, investors pared bets the Fed will raise rates next week. As of Friday afternoon, traders predicted only a 15 percent likelihood of a hike after its two-day meeting, according to the CME's FedWatch website.

"Most of the indicators I've seen suggest that the markets really don’t anticipate there's much chance of a hike this month," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, Ohio. "If they come with a rate hike, a lot of investors will scramble."

If the Fed, as expected, holds off, the focus will shift to its December meeting. Investors were betting such a move was more likely than not as of Friday, with a 52 percent perceived probability.

"If we hear a hawkish tone, in essence getting the market ready for December, the market can absorb that as long as you have the (strong economic) data underpinning," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

One investor believes Fed officials want to raise rates in order to prepare options should the economy soften in the near future. However even hinting at an increase sparks a sell-off that stifles their intentions.   Continued...

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., September 15, 2016.  REUTERS/Brendan McDermid