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“If you don’t understand what the professor is saying, don’t dismiss the possibility that he might be wrong.” – Paul Volcker

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

Paul Hickey appeared on CNBC Overtime yesterday to discuss the sideways trending market and volatility underneath the surface. To view the segment, click on the image below.

Futures are still green, but they have given up most of their earlier gains as we approach the opening bell. It appears some of the weakness may be tied to reports of a strike on some Iranian energy facilities. Conversely, oil prices are lower but have erased most of their earlier losses. Treasury yields are basically unchanged, gold is down close to 2%, while Bitcoin is down over 2% and back below $73K.

Equities in Asia had a very strong session overnight, with the Nikkei up 2.9%, while South Korea surged 5.0%. Other major indices in the region were also green but by less than 1%. Catalysts behind the move include a lack of continued upside in oil prices, stronger-than-expected export orders in Japan, and positive comments from Samsung related to AI chip demand being strong.

European stocks have also started the day on a positive note, with the STOXX 600 up 0.6%, led higher by Spain, Italy, and France, which are all up over 1%. Besides lower oil prices, February CPI also rose less than expected (0.6% vs 0.7%). Tomorrow, we’ll also get policy decisions from the ECB, BoE, and SNB.

The economic calendar is busy this morning with PPI at 8:30, followed by Factory Orders and Durable Goods at 10 AM Eastern. After that, attention will shift to the FOMC, where Powell & Co are widely expected to leave rates unchanged at 2 PM.  Investors will be focused on the press conference and summary of economic projections, but with all the uncertainty around oil supplies, take them with a grain of salt. The PPI just hit the tape and the numbers were much higher than expected, so that has pushed futures into negative territory.

In our FOMC meeting preview report sent out yesterday, we highlighted some of the key trends surrounding Fed days. The report included an overview of the market’s performance leading up to meetings and how it performs on the day of the announcement, how the market performs based on what the FOMC does (or doesn’t do), as well as how it performs on an intraday basis based on different scenarios.

One of the charts included showed the performance of the S&P 500 between FOMC meetings, and heading into today’s announcement, the S&P 500 is down about 4% since its last meeting in January. As shown, that ranks as the worst inter-meeting performance in a year and also ranks in the 15th percentile of all inter-meeting periods since 1994, when the Fed first started announcing its rate decisions on the day of its meetings. It gets worse than the last six weeks, but not much worse!

The market is currently pricing in a greater than 99% likelihood of no change in rates by the Fed today, and with the war in Iran taking center stage, there is not likely to be nearly as much attention put on Powell’s penultimate press conference this afternoon. When it comes to policy, though, there have been some major shifts in market expectations for policy between now and the last meeting for 2026 in December.

The chart below shows the change in expectations for various policy levels since the Fed last cut rates in December. While the market is currently pricing in an almost one in three chance of no change in rates between now and December, less than three weeks ago, the market was pricing in a less than 5% chance of no change in rates. Instead, the odds were heavily on cuts with a 41% chance of two cuts, a 29% chance of three cuts, a 15% chance of four cuts, and just a 17% chance of only one cut. Today, the trend has completely reversed. There’s now a greater than 70% likelihood of one cut or less, and barely more than a one in four chance of two or more cuts.

To show the shift more clearly, the chart below shows the change in market pricing for no change in rates versus two or more cuts. For three months, market expectations were pretty steady, but then that quickly changed at the end of February with one word – Iran.