9 Market Scenarios As Goldman Warns Stocks Are “Vulnerable”

bearbull2Tyler Durden:  Goldman Sachs said yesterday that financial markets are vulnerable because nobody can agree on what the Fed will do. 

While equity investors have been anticipating this moment with all the excitement and tension of a prizefight, as Bloomberg reports, bets on the outcome from the Federal Reserve’s rate decision are far more complicated than simply “win or lose” for stocks.

Amid the tumultuous background, here are predictions of nine money managers and strategists on what to expect this afternoon.

1) Crisis of Confidence

The Fed would be well-served to raise rates on Thursday to avoid a crisis of confidence among investors, according to Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania. Market participants may see central bank inaction as a signal of concern over global economic growth, he said.

“If the Fed doesn’t do anything, it lends a bit more fear to the market that things are worse than expected,” he said. “In a funny way, the fact that they wouldn’t raise rates would send a little bit of concern into the market. It may not be the most well-received type of movement.”

2) No-Win Situation

To Kim Forrest, an analyst at Fort Pitt Capital Group Inc., which oversees about $1.7 billion in Pittsburgh, the stock market is doomed to fall no matter what the Fed does. With that in mind, the Fed should “just rip the band-aid off,” according to Forrest.

“It’s going to sell off either way because there’s so much tension built up into this,” she said. “If for some reason the Fed decides whatever the magic data is doesn’t exist right now, that could worry equity folks that there’s something the Fed sees that they don’t. If they actually do take the long-awaited 25 basis point, the market sells off as people say ‘wow it actually happened.”’

3) Win-Win Situation

Robert Pavlik, who helps oversee $9.1 billion as chief market strategist at Boston Private Wealth, is optimistic about U.S. stocks regardless of the Fed outcome. Both scenarios will provide an opportunity to scoop up U.S. shares that declined as much as 12 percent in the last month, but have recovered 6.8 percent since reaching a 10-month low on Aug. 25.

“If the Fed raises rates, initial selling will be followed by buying,” he said. “If we don’t get a Fed rate hike, I think it’s a signal that we have a few more months between now and December to rally risk-on stocks. I’m in the minority thinking that the market rallies either way.”

4) Short-Lived Moves

Whatever move stocks make in the Fed decision, the aftermath will quickly be reversed after investors have time to further digest the information, said John Stoltzfus, the New York-based chief market strategist at Oppenheimer & Co. It’s similar to what happened when the central bank started scaling back its bond-buying program, which concluded in October, he said.

“If they don’t go, the market will have a little rally and then start pondering why they didn’t go,” he said. “If they do, the market will likely first stumble and extrapolate negatively, but then they’ll realize it’s a good thing.”

5) More Volatility

To Michael Purves, chief global strategist at Weeden & Co in Greenwich, Connecticut, any move in U.S. stocks will blend into a volatile landscape that’s seen the S&P 500 alternate between gains and losses for the past nine weeks.

“You’ll probably see a 1 percent or so move up if the Fed doesn’t go, but in today’s market that’s like what used to be” a 0.2 percent move, he said. “We’ll trade up, but that doesn’t necessarily mean we’ll stay there.”

6) Importance of Pace

While many market participants are hung up on whether the Fed will raise rates, people like Bill Northey, the Helena, Montana-based chief investment officer at the Private Client Reserve at U.S. Bank Wealth Management, are more focused on the speed of the Fed’s movements.

“The pace is far more important than the original start date,” he said. “The Fed and the market have been a little divergent in terms of the longer term view of the path. We’re going to get some more color through the commentary.”

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