S&P 500 Implied Volatility Suggests 100-Point Swing As Fed Decision Looms: Experts Say Market May Collapse After Rate Cuts

The all-important Federal Open Market Committee meeting is scheduled for the week, and the futures market is factoring in a 100% chance of a rate cut, although expectation regarding the magnitude of the cut varies. A prominent trader on Sunday said the week could see bouts of volatility.

Volatility Followed By Bearishness: The implied move of the S&P 500 Index this week would be +/- 96 points, said a trader whose X handle goes by the name @TradingThomas3. The implied move of an index is the expected price movement of the index over a period of time, usually until the end of the current week. 

As he noted, this is the most important FOMC meeting of the year. The odds of a 50 basis-point hike is 59% and that of a 25 basis-point downward adjustment is 41%. Rate cut hopes firmed up after the spate of recent weak manufacturing and labor market data.

@TradingThomas3 also pointed out that the second half of September is generally bearish.

When the Fed cut rates by 50 basis points in Sept. 2007 to temper the housing market collapse, the market had a similar 3.5-week bounce. After the Sept. 18, 2007 rate cut, the S&P 500 topped 3.5 weeks later. After the completion of a double-top formation, the index plummeted by over 20%. From the Fed pivot point, the index slumped 57.77%, falling deep into correction territory.

The SPDR S&P 500 ETF Trust SPY, an exchange-traded fund tracking the S&P 500 Index, edged up 0.02% to $562.38, according to Benzinga Pro data.

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