Stocks closed mostly higher yesterday. Only the Dow was lower, albeit marginally. But all of the indexes were off their intraday highs.

This afternoon we'll get the FOMC Announcement where the Fed is widely expected to announce an interest rate cut. If so, it'll be their first change in interest rates in a little over a year (14 months), and the first rate cut in 4½ years (54 months).

The Fed Funds rate is currently at 5.25%-5.50% (midpoint of 5.38%). While odds prior to last week were at 80/20 favoring a 25 basis point rate cut vs. 50 bps, those odds have shifted to 63/37 favoring a 50 bps cut vs. 25.

One of the things to watch will be how the market reacts to either one.

The risk to the Fed for a 25 bps cut are that they are moving too little too late to stem a potential larger slowdown in the economy. The risk of a 50 bps cut is that they are sending a message to the market that they may indeed have waited too long and that they are fearful that a marked slowdown could be coming. On the other hand, the market could cheer either one, grateful that the rate cut cycle has finally begun and that more are on the way.

After this afternoon's rate cut, the debate will shift to not only what happens next, but how far they intend to cut?

Some believe the Fed shouldn't stop until rates get down to 3.5% before all is said and done, which would mean a cut of nearly two percentage points (188 bps) in total.

The latest core inflation rate (ex-food & gas) for the Personal Consumption Expenditures (PCE) index, which is the Fed's preferred inflation gauge, was at 2.6%. If one were to assume that 100 basis points above inflation is the natural rate (aka the neutral rate), to allow growth, but keep inflation in check, then bringing rates down to 3.60% is where things should be, which is -178 basis points below current midpoint levels of 5.38%.

The FOMC Announcement comes out this afternoon at 2:00 PM ET. After that, Fed Chair Jerome Powell will give his customary Press Conference at 2:30.

In other news, yesterday's Retail Sales report was up 0.1% m/m vs. last month's 1.1% and views for -0.3%. Ex-Vehicles & Gas it was up 0.2% vs. last month's 0.4% and the consensus for 0.3%.

Industrial Production was up 0.8% m/m vs. last month's -0.9% and expectations for 0.1%. Manufacturing Output was up 0.9% vs. last month's -0.7% and estimates for 0.0%.

Business Inventories rose 0.4% m/m vs. last month's 0.3% and the consensus for 0.4%. Retail Inventories were up 0.8% vs. last month's 0.9%. And Wholesale Inventories were up 0.2% vs. last month's 0.0%.

And the Housing Market Index improved to 41 from last month's 39 and the consensus for 40.

Today we'll get MBA Mortgage Applications, the Housing Starts and Permits report, and the Atlanta Fed Business Inflation Expectations.

But the main event(s) today will be this afternoon's FOMC Announcement and Fed Chair Press Conference.

Regardless of the size of the rate cut and how the market reacts to today's news, it's worth noting that stocks typically perform well when interest rates are lowered.

It's also important to know that we'll soon be entering Q4, which is historically the best quarter of the year for stocks.

See you tomorrow,