A Secret Look at What's Ahead for the Market This Week

👋Hello and Happy Monday! 🌅 

Here’s what’s on deck this week:

🎤 The Fed is expected to announce its first rate cut in a year on Wednesday.

📉 The market is already stretched ahead of the Fed's BIG rate decision

🤖 Mark Zuckerberg takes the stage at Meta Connect to show off the company’s next big bets.

🏠 Retail sales, housing starts, and jobless claims headline the week’s economic releases.

📦 FedEx, General Mills, and Bullish report results, giving investors a read on shipping, snacks, and crypto.

Let’s get going.▶️▶️

💵What’s the market pricing for the Week?

The spotlight this week is firmly on the Federal Reserve, with an interest rate decision scheduled for Wednesday followed by remarks from Chair Jerome Powell that could send ripples through markets.

Powell’s comments will be closely parsed for the Fed’s latest thinking on the economy, inflation, and the path forward on monetary policy.

Investors have already pushed stocks higher in anticipation, with all three major U.S. indexes ending last week in positive territory despite a mixed showing on Friday.

The Fed isn’t the only story on the calendar: retail sales data will provide an important check-in on consumer spending, while earnings from FedEx, General Mills and Darden Restaurants will add more color on how households are navigating prices and demand.

And in tech, Meta CEO Mark Zuckerberg will step into the spotlight on Wednesday at the company’s annual developer conference, where the future of social media, virtual reality, and AI could be front and center.

Click here 👈to learn more about our charts.

📊FedEx will headline the earnings calendar this week when it reports results after Thursday’s closing bell. The shipping giant is under pressure after shelving its full-year outlook last quarter, citing tariff uncertainty.

Investors will also be watching for clues on consumer resilience from General Mills on Wednesday and Darden Restaurants on Thursday. Meanwhile, crypto exchange Bullish is slated to deliver its first earnings as a public company on Wednesday, just a month after hitting the markets.

🤔Which companies are poised to possibly over/underreact to earnings this week?

Shares of this week’s biggest reporting company (FedEx) may be poised to move beyond the implied range following earnings, based on the stock’s previous post-earnings responses (keep reading below the next table for more details). But the stock with the strongest history of overshooting post-earnings expectations is Scholastic.

At the opposite end of the spectrum, Radiant Logistics and Castor Maritime are the stocks showing the greatest potential to trade well within their expected post-earnings price ranges.

👇 Below, is a look at this week’s biggest earnings reports, sorted by market cap.

For active traders looking for actionable insights, the highlighted columns on the table above show the implied (expected) post-earnings move for each company, along with the Average 1-Day Realized Volatility Post Earnings Ratio (1D RV).

📈Implied Move: The market’s best guess at how much a stock will swing after earnings.

📊1D RV: A powerful tool that represents the post-earnings price move divided by the expected price move over the past 12 quarters. In other words, it measures how good (or bad) the market is at pricing each company’s earnings.

💵When you see a ratio >1.0, indicates that, historically, the earnings are mispriced and the stock moves MORE than the market anticipates, favoring straddle buyers.

🪝A ratio <1.0 tells the opposite story, meaning the stock historically moves LESS than the market anticipates, which favors straddle sellers.

Happy hunting.

Note: We’ve been working hard on a new premium Substack product that we plan to launch in the next few weeks. In a nutshell, this product will offer Wall Street-level insights designed to help stock and options traders understand both price and time-related risks. During the leadup to this launch, we’re excited to start sharing small segments of this new product each week.

^{_{The Market Is Already Stretched Ahead of the Fed}}

The Fed hasn’t touched interest rates in 9 months, but that streak looks like it’s about to break. Traders are pricing in a 92% chance of a quarter-point cut at next week’s meeting and a slimmer 7.5% shot at a bigger half-point trim, according to CME’s FedWatch tool.

Technically, the market has already had a meaningful runup into this week’s big happenings, with the S&P 500 closing more that 2 standard deviations above its 50-day moving average this past Thursday.

This development has transpired as the S&P 500 also closed with a rolling 1-year return of +19.9% on Thursday (not shown). In other words, the S&P 500 gained 19.9% in the past 12 months through Thursday’s close.

Over the past 10 years, when the S&P has become this extended above the intermediate term 50-day moving average, with a rolling 1-year return of at least 19.9%, it has resulted in forward returns that were relatively muted in the 5 days that followed, with gradual improvement seen 2, 3 and 4 weeks later.

On Friday, the S&P 500 closed lower by a trivial -0.5%, which is essentially in line with median returns on day 1 following similar signals (see the Day 1 column on the table above).

The right-hand portion of this next chart reveals what the S&P’s short-term range might look like through the end of this week, based on the average of all rallies, drawdowns (sell-offs), and trading sessions following the 17 similar events that have occurred of the past 10 years.

Make no mistake; the binary risk surrounding Wednesday’s Fed announcement means price action this week could lean more volatile than usual.

Rate-sensitive sectors like banks, homebuilders, and tech will likely take the brunt of the swings as traders hedge both outcomes. Intraday volatility could spike on headlines, leaks, or even shifts in futures pricing as markets handicap the Fed’s next step.

Decision day itself is likely to bring fireworks. Expect the familiar pattern—indexes whipsawing on the initial statement before turning again as Powell works through his press conference. But this time, the band of possible outcomes is wider, making both the pre- and post-announcement moves potentially sharper.

Bottom line: Fed weeks are always noisy, but with a September cut all but baked in, the bigger risk for markets isn’t what the Fed does—it’s whether they match expectations.

And in a market this extended, disappointing the bulls could unleash more volatility than investors bargained for.

With the stock market’s main measure of volatility (the CBOE Volatility Index - VIX) still trading near 1- year lows, one could argue that expectations for the S&P 500’s weekly performance to be abnormally distributed this week are probably premature.

Recently, however, there has been growing evidence to suggest that certain key sentiment measures are becoming stretched.

Specifically, the first two charts in the Under Surveillance section toward the bottom of this email highlight the extreme short positioning in the VIX by Large Speculators and maxed-out long positioning in Commodity Trading Advisors (CTA) positions.

Both of these groups of traders are trend followers and their positions tend to reach extremes before important turning points in the market.

While this type of analysis is not great for timing market turns (it’s better for identifying near-term windows where turns can happen), the fact that this information is surfacing just days ahead of an anticipated Fed rate change, after a sharp market runup, increases the potential for the weekly range to witness outsized movement. 

Click here 👈to learn more about our charts.

When the Fed is expected to move on rates, the S&P 500 tends to trade like it’s on pause leading up to the event.

But with the Fed widely expected to cut rates for the first time since December on Wednesday, the 2nd half of the week could prove choppier than usual.

Monday

• Empire State Manufacturing (September)

• Top Earnings: Dave & Buster’s

Tuesday

• U.S. retail sales (August)

• More Data to Watch: Import price index (August), Industrial production (August), Capacity utilization (August), Business inventories (July), Homebuilder confidence (September)

• Top Earnings: Ferguson Enterprises

Wednesday

• Federal Reserve interest rate decision

• Fed Chair Jerome Powell press conference

• Meta CEO Mark Zuckerberg speaks at Meta Connect

• More Data to Watch: Housing starts (August)

• Top Earnings: General Mills, Bullish

Thursday

• Initial jobless claims (Week ending Sept. 13)

• More Data to Watch: Philadelphia Fed manufacturing survey (September), U.S. leading economic indicators (August)

• Top Earnings: FedEx, Lennar, Darden Restaurants, FactSet Research

Friday

• Quiet day with nothing scheduled