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Dec. 17, 2018, 12:28 p.m. EST

The big question this week: Is the Fed about to completely break this market?

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By Shawn Langlois, MarketWatch


Getty
Donald Trump and Fed Chair Jerome Powell, in happier times.

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 /zigman2/quotes/210598269/delayed DXY -0.26%  and a rally in risk assets over the coming weeks.”

In other words, get ready for even more volatility /zigman2/quotes/210598281/delayed VIX -0.79%  — 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.

Read: Why the Fed won’t save the stock market

“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:

Click here for a bigger version .

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

The Dow /zigman2/quotes/210598065/realtime DJIA -0.53%  , S&P   /zigman2/quotes/210599714/realtime SPX -0.20%  and Nasdaq  /zigman2/quotes/210598365/realtime COMP +0.37%  showed some signs of life overnight in the futures market, but they were all lower by midday trading. At the same time, gold  was moving slightly higher, while crude  was off almost 2%. The dollar /zigman2/quotes/210598269/delayed DXY -0.26%  was also lower, at last check. Asia markets /zigman2/quotes/211618636/realtime XX:ADOW +0.23%  closed mostly mixed, while Europe /zigman2/quotes/210599654/delayed XX:SXXP -0.08%  had a pretty rough day.

Check out Market Snapshot for more coverage

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 /zigman2/quotes/210599714/realtime SPX -0.20%  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 /zigman2/quotes/202090840/composite NYT +0.85%  captures just how clustered the swings have been relative to the prior year.

/zigman2/quotes/210598269/delayed
US : U.S.: ICE Futures U.S.
91.99
-0.24 -0.26%
Volume: 0.00
Nov. 25, 2020 1:57p
loading...
/zigman2/quotes/210598281/delayed
US : Cboe Indices
21.47
-0.17 -0.79%
Volume: 0.00
Nov. 25, 2020 12:52p
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
29,887.36
-158.88 -0.53%
Volume: 194.48M
Nov. 25, 2020 2:07p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,628.07
-7.34 -0.20%
Volume: 1.42B
Nov. 25, 2020 2:07p
loading...
/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
12,081.56
+44.77 +0.37%
Volume: 3.03M
Nov. 25, 2020 2:07p
loading...
/zigman2/quotes/210598269/delayed
US : U.S.: ICE Futures U.S.
91.99
-0.24 -0.26%
Volume: 0.00
Nov. 25, 2020 1:57p
loading...
/zigman2/quotes/211618636/realtime
XX : Dow Jones Indices
3,670.68
+8.54 +0.23%
Volume: 0.00
Nov. 25, 2020 12:53p
loading...
/zigman2/quotes/210599654/delayed
XX : STOXX
392.09
-0.30 -0.08%
Volume: 0.00
Nov. 25, 2020 5:50p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,628.07
-7.34 -0.20%
Volume: 1.42B
Nov. 25, 2020 2:07p
loading...
/zigman2/quotes/202090840/composite
US : U.S.: NYSE
$ 41.54
+0.35 +0.85%
Volume: 659,876
Nov. 25, 2020 2:07p
P/E Ratio
44.07
Dividend Yield
0.58%
Market Cap
$6.86 billion
Rev. per Employee
$402,708
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