Emotions Are In The Stock Markets With Most Investor Selling

Higher rates are meant to reduce economic demand to lower inflation. Investors fear the Fed will tighten into a recession, so a potential end to rate increases is encouraging the Stock Markets.

“Better price action in stocks has started to convince many investors they are missing something—compelling them to participate more actively,” Wilson wrote.

The problem is that the Fed takes center stage Wednesday and may give news the market doesn’t want to hear. That is because it is incentivized to point to more rate increases than expected.

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It may need to use its commentary to spur interest rates in the bond market to rise because rates have recently fallen. A decrease could potentially increase borrowing, spending, and inflation.

Meanwhile, inflation has still been well above the Fed’s 2% target, so the Fed wants to ensure rates don’t fall too much.

“Investors seem to have forgotten the cardinal rule of ‘Don’t Fight the Fed,” wrote Wilson. “The good news is now priced, and reality is likely to return with month end and the Fed’s resolve to tame inflation.”

Already, the Stock Markets looks nervous about the Fed. With two more days until the Fed speaks, traders are selling. All three indexes were in the red Monday morning, and the Nasdaq Composite was down more than 1%.

Sure, that makes it possible that the market will come into Fed day down enough to post a gain when the Fed speaks. Don’t have high hopes for any substantial rally.

Sale!