To The Moon

The Federal Reserve concludes its two-day meeting on July 29. Although leaving rates unchanged remains the most likely outcome, markets may react more strongly to the Fed’s language about oil-driven inflation and the possibility of a later increase.

A Reuters survey published July 21 found that all 104 economists expected the Fed to maintain its 3.50%–3.75% target range. However, market pricing changed rapidly as oil prices rose. As of July 24, federal-funds futures reflected approximately a 62.1% probability of no change and a 37.9% probability of a quarter-point increase. These probabilities come from futures prices rather than subjective estimates; CME FedWatch explains the methodology.

The bullish scenario is a rate hold accompanied by acknowledgement that the recent $Energy Select Sector SPDR Fund(XLE)$ energy shock may be temporary. That would reduce immediate pressure on long-duration $Technology Select Sector SPDR Fund(XLK)$ technology shares, $Utilities Select Sector SPDR Fund(XLU)$ utilities, $Real Estate Select Sector SPDR Fund(XLRE)$ real-estate companies and smaller businesses with floating-rate debt.

The bearish scenario is either an unexpected increase or guidance indicating that September tightening is likely. Higher rates increase corporate borrowing costs and reduce the present value assigned to distant earnings, creating particular pressure for highly valued growth stocks.

Oil complicates the decision. June core inflation had moderated, but crude prices subsequently surged because of Middle East supply concerns. The Fed must decide whether that represents a temporary headline shock or a risk to broader inflation expectations. Its July monetary-policy report described inflation as elevated relative to the 2% objective while acknowledging energy-related supply shocks.

The decision also arrives during the busiest week of earnings season. Approximately one-third of S&P 500 companies are due to report, including Microsoft, Meta, Amazon, Apple and Visa. Reuters’ July 24 market preview explains the combined policy and earnings risk.

Technically, the S&P 500 closed at 7,411.98 on July 24 after losing 0.6% for the week, while the $NASDAQ(.IXIC)$ lost 2.1%. The $S&P 500(.SPX)$’s ability to hold approximately 7,400 after the announcement will be an immediate sentiment test. A decisive recovery above the previous week’s highs would suggest the uncertainty was absorbed; sustained trading below recent June support would imply a more meaningful risk-off shift.

The evidence leans neutral before the decision. A hold is more likely according to the cited futures methodology, but the communication about September may matter more than Wednesday’s action. The neutral view would become bullish if inflation concerns ease without weakening growth, and bearish if the Fed signals sustained tightening while corporate guidance deteriorates. This is personal opinion for education and is not financial advice.

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Disclaimer: This article is for informational and educational purposes only and does not constitute financial, investment, or trading advice. The views expressed are personal opinions based on publicly available information and are subject to change without notice. Investors should conduct their own research and consider their financial situation, risk tolerance, and investment objectives before making any investment decisions. I do not guarantee the accuracy or completeness of the information presented.