The Fed is going to speak tonight—this might be more important than the oil price roller coaster over the past two weeks.
Conclusion first: US stocks have rebounded for two consecutive days (S&P +0.25%, VIX plummeted to 22), but oil prices rose back to $103 today—this may just be a breathing window before tonight's FOMC (Fed interest rate decision + economic forecast release). If you see the rebound and want to add positions these past two days, read this first.
First, understand what happened these past two days
On Monday, all three major US stock indices closed higher. All 11 sectors of the S&P 500 closed higher, the first time since the Iran conflict began. They rose again on Tuesday. The VIX (fear index, higher numbers indicate greater market fear) plummeted from 27.19 to 22, the lowest in weeks.
But oil prices rose back today. Brent rose 3.43% back to $103, because Israel killed Iran's top security official, and Iran retaliated by attacking a UAE gas field. Last Tuesday, Trump said "the conflict is nearing its end" and oil prices fell $30; the same week, he bombed Kharg Island (the gateway for 90% of Iran's crude oil exports). What he says next, nobody knows.
Why is tonight's FOMC more important than oil prices? (You need to understand this to grasp the coming week)
Tonight, the Fed will announce its interest rate decision and something called the "dot plot" (Fed officials' predictions for future interest rates, each dot represents one official's forecast). It's almost certain there will be no rate cut—CME FedWatch shows a 92%+ probability of maintaining rates at current levels.
But the key isn't whether they cut or not, it's how the dot plot is drawn. The last dot plot (December) showed one rate cut this year. If tonight it becomes zero cuts, it means high interest rates will last longer than everyone expected. Who is hurt most by high rates? Tech stocks, growth stocks—likely the largest portion of your portfolio.
Two narratives are clashing head-on tonight
The market has been running two stories simultaneously these past two weeks. One is "stagflation" (economic slowdown + high inflation, the Fed's most difficult dilemma), with gold basically flat at $5,014 today. The other is "AI demand," with Jensen Huang calling for $1 trillion in chip orders at GTC, and today the Amazon CEO predicting AWS revenue will double in the future.
Tonight's dot plot will decide which narrative wins. If it shows zero cuts, the stagflation narrative is confirmed, putting pressure on tech stock valuations. If it maintains one cut and Powell sounds dovish, the AI narrative gets room to breathe.
One thing I find absurd: Australia is raising rates instead
The whole world is waiting for rate cuts, but the Reserve Bank of Australia raised rates for the second consecutive time to 4.1% today. This week also has interest rate decisions from Japan/UK/European central banks. If multiple central banks sound hawkish, the "global rate-cutting cycle" narrative might be getting rewritten.
The one thing you should do right now: Don't rush to add positions just because of the rebound these past two days. The FOMC is tonight; everything before the dot plot is speculation. If you add positions based on the rebound before the FOMC, and the dot plot turns against you, you won't even have time to adjust.
My portfolio: Zero trades for 14 trading days
From March 4th to today, oil prices went from $55 to $119, then down to $93, then back up to $103. The VIX went from 17 to 35, then down to 22. I haven't touched a single share. Not because I'm accurate, but because every time I wanted to act, I asked myself: "Are you acting based on a judgment, or because you can't stand the anxiety of not acting?" The answer was always the latter. Anxiety is not a signal.
The second thing: List all the interest-rate-sensitive holdings in your portfolio—tech stocks, growth stocks, highly leveraged companies—calculate how much your account would be affected if the number of rate cuts this year becomes zero. Before the FOMC results, this is far more important than watching oil prices.
Did the rebound tonight make you itch to add positions? After the FOMC results, how do you plan to respond? Let us know in the comments.
The copyright of this article belongs to the original author/organization.
The views expressed herein are solely those of the author and do not reflect the stance of the platform. The content is intended for investment reference purposes only and shall not be considered as investment advice. Please contact us if you have any questions or suggestions regarding the content services provided by the platform.
