JPMorgan told clients in a note that the Federal Reserve's decision today is the most significant catalyst for markets during regular trading hours, and provided a scenario-driven playbook for how the S&P 500 might react under different outcomes.
Michael Feroli, the bank's economist, expects the Fed to keep the fed funds rate on hold, while noting there will be "at least 2 hawkish dissents," specifically naming Hammack and Logan.
The firm's Market Intelligence desk assessed the probability of a rate increase at roughly 30%, a level it described as below what markets currently imply. The desk cited U.S. GDP growth as running near trend with upside risks, and characterized inflation as elevated but not appearing to be "at-risk of an upside explosion." The team added that if the Fed were to decide on a rate hike, June would have been a more natural timing given that consumer price index readings were above the fed funds rate then.
JPMorgan laid out a scenario analysis with assigned probabilities and expected S&P 500 moves:
- Hawkish hold - 50% probability (base case): The S&P 500 could land anywhere from up 25 basis points to down 50 basis points.
- Dovish hold - 28% probability: Described as the most favorable outcome for equities, expected to lift the index between 50 basis points and 1%.
- 25-basis-point hike - 20% probability: Projected to push the S&P 500 down 1.5% to 2%, with the Nasdaq 100 likely to fall by a larger amount.
- 50-basis-point hike - 1% probability and an outright cut - 1% probability: Each assigned very low chances.
The note also highlighted options market pricing. Options expiring on July 29 were implying a move of roughly 0.8% based on July 28 prices, which JPMorgan pointed out is below the roughly 1.1% move typically priced into recent CPI events.
By quantifying outcomes and attaching probabilities, the bank provided clients with a framework tying Fed decision risk to near-term equity move ranges, while flagging that the market's implied odds for a hike are higher than the firm's view.