The market looks divided on the magnitude of the coming Fed rate hike and right now the market is discounting about 4.25% as the terminal rate for this Fed rate hike cycle, said market expert Ajay Bagga in an interview with ET Now.
"Well looks like a 75 basis point hike, the third in a row. The market is a bit vary that it will be 100 basis points but there is a low probability, one-fourth of a percent probability of 100 basis points," said Bagga.
Bagga highlighted that the key part of this Fed meet will be the 'dot plot' which will give cues for the rate hike trajectory.
The so-called dot plot is a sort of chart that hints at the rate hike trajectory of the US Federal Reserve’s Federal Open Market Committee (FOMC). Fed releases its dot plot and estimates on other major economic indicators like inflation and GDP data.
"The key part of this Fed meet will be that dot plot will again be released after June. We will get the new dot plot so that will give us an idea of the terminal rate. Right now the market is discounting about 4.25% as the terminal rate for this Fed rate hike cycle so let us see what the FOMC members come out with," said Bagga.
Bagga said that the market would not see a big selloff as it is already weak ahead of the meeting.
"The market is going very weak into the meeting so we do not expect a big selloff, in fact, there could be a slight rally based on that but overall the situation is deteriorating," he told ET Now.
Bagga expects the market may continue to go down.
"The third quarter S&P 500 revenues are down, earnings are sharply down where on July 1 the street estimate was 11% year on year growth, it has gone down to 5.8%. So the earnings estimates are going down, valuations have gone down and we expect markets to continue to go down," he said.
Bagga pointed out that our index has given no returns for the year whereas there are pockets, sectors, and individual stocks which have done very well but overall, we have managed just to stay flat.
Disclaimer: This article is based on an ET Now interview. Views and recommendations are those of the analyst. These do not represent the views of MintGenie.