With limited economic data in focus, investors have their sights set on this week's rate meeting, where the central bank is widely expected to raise rates by 75 basis points — although a bigger hike isn't out of the question. Many investors have ditched stocks in anticipation of a more aggressive Fed ahead and what that could spell for the economy.
Adam Sarhan, CEO of 50 Park Investments is watching the Fed's decision but anticipates further downside ahead given that the VIX — Wall Street's "fear gauge" — is "relatively low." The market also hasn't experienced extreme selling on large volumes, which tends to signal a bottom. The VIX ended Monday at 25.76, well below a 52-week high of nearly 39.
"You want to see the average Joe on Main Street feel the duress because that typically signals a market bottom is here or in," Sarhan said, noting that unemployment needs to go up and housing prices have to come down.
In this environment, he points to cash as a stable investment choice for investors to ride out the volatility.
Morgan Stanley's Andrew Sheets agreed with that sentiment in a note to clients, explaining that the 12-year mantra that investors should stay long on stocks and bonds – known as "There Is No Alternative" or "TINA" – is coming to an end in lieu of cash and short-term fixed income instruments offering lower volatility.
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