The S & P 500 and Nasdaq Composite have recovered their losses since the April 2 tariff announcement. Now, investors are trying to figure out the market implications of the Federal Reserve decision on Wednesday. The CME Group’s FedWatch tool shows a more than 95% chance that the central bank will keep rates at the current 4.25%-4.5% range. However, Wall Street will look for clues on future policy moves, taking queues from Chair Jerome Powell’s comments following the decision. Craig Johnson, chief market technician at Piper Sandler, thinks even neutral commentary from Powell could send stocks lower, as the S & P 500 trades near a resistance level of 5,800. “We could be due for a pullback and a correction back toward a level of 5400, 5500 as we go through the Fed announcement, Fed commentary and everything else that might be the catalyst,” Johnson told CNBC. The tentative outlook ahead of the Fed announcement and tariff uncertainty has led many strategists to take a more defensive stance heading into Wednesday. “The crux of the question is, does the Fed want to risk moving before the 90 day tariff moratorium expires?” pondered Steve Sosnick, chief strategist at Interactive Brokers. “Right now they don’t have enough data to really tell how this is playing out, supply issues, price hikes. It’s not clear they are going to have that data six months from now.” What to buy Keith Lerner, co-chief investment officer at Truist is overweight utilities, financials and communication services sectors going into the Fed decision. XLU YTD mountain XLU year to date “We think even if the economy slows some of these big tech names will continue to do fine,” said Lerner, “Even if the economy slows down, that AI spend is likely to continue. In some ways these big mega cap tech names are acting somewhat more defensive in that there is still secular demand at a time where there is uncertainty.” Utilities are the best-performing sector in the S & P 500 this year, gaining more than 6%. Financials have advanced 2% in that time, while communication services are down 2%. Adam Patti, CEO of VistaShares, which manages the Artificial Intelligence Supercycle ETF (AIS) sees tech and AI focused stocks as a safe play going into the meeting but believes there is also potential for a reacceleration to the upside. “I think the AI trade is going to come back with a vengeance to the upside,” said Patti. “I think there was a major overreaction there. The underlying fundamentals particularly in the AI space remains the same. Most of these large hyperscalers all reaffirmed their capex spending.” Piper Sandler’s Johnson also sees tech as a way to play defense with the potential for upside but believes the opportunities are outside of the Mag Seven. “Software companies look more attractive than semiconductor companies right now,” said Johnson. “I’m definitely going to go out and buy things like Twilio, such as Monday.com.” Additionally, Johnson likes Kratos Defense and Mercury Systems .Malcolm Ethridge, managing partner of Capital Area Group, believes there is an opportunity in short term bonds. “This would definitely be the time I would want to lock in those rates,” said Ethridge, “If I’m a person who is looking for a place to put dollar to work for the short term I would rather lock in those rates before the Fed meeting.” The 2-year Treasury note yield traded at 3.797% on Tuesday.
