The Big Question This Week: Is the Fed about to Completely Break This Market?

All eyes will be on the Federal Reserve meeting midweek, as bulls pin their hopes on some dovish words, if not a pause in the rate-hike playbook, to lure buyers back in to this reeling stock market.

It’s almost Christmas, after all.

But one way or another, there will be fireworks, according Chris Puplava, CIO at Financial Sense Wealth Management, who says the powwow will likely end the consolidation we’ve been seeing in the market over the past two months.

“If the Fed turns a deaf ear to the market and does not signal a pause in rate hikes, we are likely to see markets in the U.S. and globally continue to sell off and break down to new lows,” he explained in our call of the day. “However, if the Fed finally acknowledges the material slowdown underway in interest-rate sensitive sectors, like housing and autos, and signals a pause we will likely be treated to a sell off in the dollar DXY and a rally in risk assets over the coming weeks.”

In other words, get ready for even more volatility VIX — we’ve already had plenty, as you can see from our chart of the day below — during a time of the year that has typically gifted investors with seasonal gains.

Puplava says this particular meeting is critical in understanding the kind of market climate we can expect in the year ahead.

“The Fed often raises rates until something breaks, whether it be a break in the financial markets with some financial event or a break in the economy in which a recession occurs,” he wrote. “What should be on the Fed’s and investor’s minds is the question of whether or not the Fed is close to breaking something in the markets or economy.”

Puplava posted this “list of casualties from past Fed rate hikes” going all the way back to the 1970s. The pink columns show the recessions:

 

Puplava’s takeaway: “Investors may want to position themselves defensively heading into what is likely to be a very volatile 2019.”

If the reading from the Bank of International Settlements is any indication, getting defensive isn’t such a bad idea. The group, one of the world’s oldest international financial organizations, predicts that more selling is on the way.

“The market tensions we saw during this quarter were not an isolated event,” BIS’s Claudio Borio wrote. “Monetary policy normalization was bound to be challenging, especially in light of trade tensions and political uncertainty.”

As we enter “the most wonderful week of the year,” there’s reason to believe this time won’t be so wonderful, though stocks are showing some life early.

The market

Futures on the Dow YMH9, S&P ESH9 and Nasdaq NQH9 have tilted south. Gold GCZ8 is up a little, as is crude CLH9. The dollar DXY is down. Asia markets ADOW closed mostly mixed, while Europe SXXP is having a rough day.

The chart

It’s about as rough as it gets out there in terms of volatility. According to S&P Dow Jones Indices, there have been 12 times this year when the S&P 500 SPX has moved at least 3% from its intraday low to its high — that’s the most we’ve seen since 2011. This chart from the New York Times NYT captures just how clustered the swings have been relative to the prior year.

 

As the Times points out, more than half of the 3% swings have come since October, and things don’t appear to be quieting down as we head toward the holidays.

The buzz

Netflix NFLX has some seriously grand plans. As part of its ambitious aim to become the most prolific movie studio in show business, the Los Gatos, Calif.-based streaming giant is looking to release 90 films a year in what its original-movies chief describes as a “cinematic onslaught.”

Healthcare stocks are looking softer, with Humana HUM, Centene CNC and Community Health Systems CYH among those dropping after a Texas federal court ruled Friday that Obamacare was unconstitutional.

Goldman Sachs GS is taking a hit on news that the bank and two of its Asian subsidiaries have been officially charged in Malaysia over that 1MBD scandal.

If the home stretch to 2018 is any indication, next year promises to be a wild one for markets. To help you get a handle on every twist and turn, check out the our annual list of the must-follows on Finance Twitter TWTR.

The quote

“It is an awful, awful ruling and we are going to fight this tooth and nail” — Sen. Chuck Schumer, talking to NBC’s Chuck Todd on “Meet the Press” Sunday about the federal judge’s decision to strike down the Affordable Care Act.

The stat

62% — That’s the percentage of Americans who say President Trump has been lying about the investigation into Russia’s interference in the 2016 presidential campaign, according to a new national NBC News/Wall Street Journal poll. As you can see by the graphic below, that number is on the rise.

 

The economy

Other than that expected rate hike from the Federal Reserve later this week, we’ll also get November housing starts and existing home sales. The third estimate of third-quarter GDP is also on the way. As for what’s on tap Monday, the New York Fed Empire State manufacturing survey came in pretty weak for December.

Meanwhile, the White House on Sunday pushed the government to the brink of a shutdown, standing strong on its demand for $5 billion to build that wall. “We will do whatever is necessary to build the border wall to stop this ongoing crisis of immigration,” said senior adviser Stephen Miller. And that includes a shutdown.

And China’s annual Central Economic Work Conference starts Tuesday. The government will set out policy direction and perhaps announce stimulus for an economy that’s been showing signs of sagging.

Article and media were originally published by Shawn Langlois at marketwatch.com