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Why stocks could plunge 15% if the Federal Reserve doesn't do one thing

Brian Sozzi

Federal Reserve Chairman Jerome Powell better deliver Mr. Market his 100-pound slab of beef on Wednesday, or else.

That beef should be of the high-end wagyu variety — a mixture of a strongly dovish press release on Fed decision day (aka removal of the word “patient”) followed by an equally dovish press conference with reporters.

After all, it’s clearly what a market seemingly back to going up each day is craving right now. Despite the ongoing risks from President Donald Trump’s trade war with China, investors have sent stocks back to record highs mostly on Powell’s renewed dovish stance on interest rates.

But stocks could quickly tank 10% to 15% if Powell tries to stomp out projections in the market for at least three interest rate cuts this year, cautioned New Wealth Management CEO Daryl Deke on Yahoo Finance’s The First Trade. Fisher Investments strategist Mike Hansen thinks volatility in the markets could meaningfully pick up should Powell try to recalibrate investor expectations.

Most strategists Yahoo Finance has spoken with ahead of the Fed decision believe investors have priced in three rate cuts this year. That’s a strong expectation for a Fed that isn’t too far removed from raising interest rates.

Without question, Powell has nobody to thank but himself for being forced into delivering such a high-end cut of beef to a voracious market.

The Fed chair took a decidedly dovish turn at a conference for policymakers in Chicago several weeks ago. In turn, the disappointing May jobs report that followed the shift in tone (and other weak economic reports) was viewed by the market as meaning rate cuts would soon be happening.

Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow Brian Sozzi him on Twitter @BrianSozzi

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