One Analyst Expects Stocks To Soar After The Fed's Interest Rate Decision Wednesday

The Federal Reserve and Federal Open Market Committee are scheduled to announce July's interest rate decision at 2 p.m. ET Wednesday. Although the expectations are for the Fed to keep rates unchanged, one analyst is projecting that stock prices will surge following the announcement.

CME Group's FedWatch tool, which tracks the probability of Fed decisions on interest rates, shows only a 3% chance the Fed does end up cutting rates by 25 basis points Wednesday afternoon. But Fundstrat's Tom Lee said that he still expects stocks to surge higher following the announcement.

The Call: Lee says that while market participants expect interest rates to come down in September, equity traders will not begin pricing that dynamic until the decision is made final. And if Fed Chair Jerome Powell, who will speak at 2:30 p.m. ET Wednesday, confirms the Fed is planning on cutting rates in September, stocks could get a boost.

“The key premise is the Fed is likely to commit to a September rate cut of at least 25bp. A possibility of more than that is not necessary," Lee said in a note released Wednesday, according to Business Insider.

"And while bond markets have priced in 100% probability of this, equity investors likely will not be convinced until the Fed affirms this as such.”

Read Also: Fed Shouldn’t Wait Until September: Poll Finds Nearly Half Want Rate Cuts Today

What Are The Odds? The FedWatch tool shows a 100% chance the Fed will lower rates at its September meeting, with a .2% chance that rates are reduced by 75 basis points, a 10.1% chance that rates are reduced by 50 basis points and about a 90% chance rates are reduced by 25 basis points. 

Why It Matters: Big tech companies like Microsoft, Apple and others have held up well despite higher interest rates. Other sectors like clean energy, tracked by the iShares Global Clean Energy ETF ICLN, have struggled in a high-interest rate environment, with the ETF trading down more than 8% year-to-date against the S&P 500 tracking ETF’s gain of more than 16%. 

Read Next: Market Strategist Jay Woods Says ‘Rotation In Small Caps Is Just Starting’: Russell 2000 Within 8% Of All Times, ‘Easy Upside Target’

Illustration created using artificial intelligence via MidJourney.