Whenever the Federal Reserve holds a meeting, markets are on edge.
So many investment models must take into account risk-free discount rates, those rates based off Federal Reserve policies. As a result, pricing adjustments always take place around important Federal Reserve meetings.
Investors adjust those models based off what they believe discount rates will be in the future. This month, many investors have priced in a rate cut.
If the Federal Reserve doesn’t cut rates I think the market will be disappointed and will sell off.
If the Federal Reserve does cut rates, I think the market will be optimistic (more than they already are), stocks will get a boost, and treasuries and gold will surge.
I don’t believe volatility will stay low this week. VIX is sitting at 13.2 as of now just before market open on July 23rd 2019.
In July, VIX bottomed out around 12.4. It’s bounced off this support line a couple of times this month. It’s surged over 14.5 on a couple of occasions. I think following the Federal Reserve meeting VIX will climb up to 15 or possibly over 17 by the end of the week.
That’s what I think. How about you?