The Blubber

Per Bloomberg:

The S&P 500 could surge at least 10% in one day if the central bank raises interest rates by a slower-than-expected half of a percentage point, and Chair Jerome Powell signals willingness at the press conference to tolerate elevated inflation and a tightening labor market, according to the bank’s sales team including Andrew Tyler. The scenario is the “least likely” to materialize, yet the “most bullish” outcome for equity investors, the team wrote in a note to clients on Monday.

Laying out every possible scenario on Fed day, the JPMorgan team is embarking on a high-stakes task of predicting market moves based on an event that has largely been positive for stocks this year. Of the six prior meetings, the S&P 500 rose four times on Fed day and fell on the other two, according to Bloomberg data.

To be sure, the bank’s economists expect the Fed to boost rates by another three-quarters of a percentage point, in line with the median forecast in a Bloomberg survey, and Tyler’s team views other scenarios as less likely. Still, the exercise offers a lens into the risks that investors are grappling with.

“These outcomes are skewed to the upside as our view is that last week the market had every reason to retest lows given the disappointment from megacap tech earnings and still moved higher,” noted Tyler and his colleagues. “Several client conversations have focused on trying to identify who is the incremental seller; we think the risk/reward is to the upside.”