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The Stage Is Set for a Big Market Move

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https://realmoney.thestreet.com/investing/the-stage-is-set-for-a-big-market-move-16110897
 
The Stage Is Set for a Big Market Move
 
The odds of a Fed interest rate hike of 0.50% on Wednesday are around 70%-80%.
 
By JAMES "REV SHARK" DEPORRE
 
December 12, 2022 | 06:57 AM EST
 
The market is ripe for elevated volatility this week as it confronts several important events. First up is the CPI on Tuesday morning at 8.30 am ET. That is followed by the Federal Open Market Committee interest rate decision and a press conference with Fed Chair Jerome Powell on Wednesday morning. There are a number of other economic reports, such as retail sales and PMI, before we finished the week on Friday with quarterly quadruple witching when options and futures expire.
 
There is some significant news flow hitting at the same time that indexes are at a key inflection point. The S&P 500 is holding some major support over 3900 after giving back a big gain that was produced the last time that Jerome Powell spoke. The market celebrated what was viewed as a slightly less hawkish tone, but it fizzled out fast as the economic narrative shifted last week.
 
For months the market has been primarily focused on the issue of peak inflation. CPI has softened recently, and bulls are hoping that the report on Tuesday is going to confirm that trend. If CPI comes in higher than expected, it is unlikely to impact the Fed interest rate hike of 0.5% on Wednesday, but it may impact the comments made by Powell and other Fed members.
 
The economic narrative has shifted away from worries about CPI to greater concern about strength in the jobs market and the potential for a recession as the Fed battles raising wages and strong employment. That has been the bigger worry recently, but it also didn't help that the PPI was stronger than anticipated.
 
The odds of a Fed interest rate hike of 0.50% on Wednesday are around 70%-80%. If the Fed deviates from that expectation, we can expect a huge move, but that is unlikely. The key on Wednesday will be Powell's press conference. The Fed has made it very clear that they may slow the pace of rate hikes, but the terminal rate is likely to go higher and stay there for longer. There has been no softening in that stance, and that is what is going to keep weighing on the market.
 
We will have some positioning action on Monday as we await Tuesday morning's CPI report, but the Fed meeting is going to be the big mover this week. Take a look at this chart of the S&P 500 that I posted this weekend on Real Money which shows each Fed interest rate decision this year. The one thing we can be sure of is that we are going to see some big moves.