Lower Bar for Powell

Wall Street has a short memory, but the memory tends to last longer when they are associated with big down days and the beginning of a sharp decline.  Almost every trader will remember that the August selloff was kicked off by a less than dovish Powell, and his mid-cycle adjustment comment, and the bear ball went further down the hill with the help of some Trump tariff announcements.  

That August selloff has all been taken back by the stock market.  But with the FOMC meeting closing in, with the accompanying dotplots and the Powell press conference, short term traders will probably be leaning bearish going into the meeting.  That means that expectations from Powell are much lower this time than back on July 31.  Powell has a lower bar to jump over to please the market this time, which makes it a bad risk reward proposition to be short going into the FOMC rate decision.  In fact, I see a higher likelihood of a short term pop rather than a short term drop after the Fed announcement.

There are also opex forces at work this week, with a bullish bias going into the quarterly options expiration.  The Saudi oil news and subsequent pullback probably provided enough fuel for a run higher into the Friday cash open SPX options expiration.  Market makers are usually short options, especially put options.  Although they hedge their exposure, they stand to gain more if markets go higher into the expiration, not lower.  

At current SPX levels of 3000, investors don't seem to be leaning bearish or bullish.  Other than the factors mentioned above, there isn't anything else that really presents an edge here.  The Saudi oil news is relevant for oil, and that's about it.  Oil doesn't really matter to the broader economy anymore because its only a small percentage of consumer spending.  And higher oil prices helps the oil producers just as much as they hurt oil consumers, so it mostly evens out in the stock market.