(Bloomberg) -- Financial markets have settled into a stable trading pattern ahead of a make-or-break Federal Reserve decision, where officials look poised to ratchet up interest rates by another three-quarters of a percentage point. The calm may not last.

Any surprise -- from the size of rate hikes to a hawkish shift in policy expectations on where the Fed rate may peak -- could send the stock market on one of its wildest rides in history, according to JPMorgan Chase &. Co.’s trading desk. 

Embarking on the risky task of predicting market moves Wednesday, the team see everything in store, at least in theory, including one of the best days on record for the S&P 500 if the central bank goes for 50 basis points -- or a more than 5% drop in the event it hikes by a full percentage point followed by a hawkish press conference.

To be sure, the bank’s economists predict a rate hike that’s in line with consensus -- a 75 basis-point move -- and the sales team calls some scenarios as “highly unlikely.” But the exercise offers a lens into the risks that investors are contending with. Across regions and assets, traders are busy making the final tuning to their portfolios ahead of one of the widely anticipated policy announcements in recent history.

Hedge funds have built up a large short position across front-end of the Treasuries curve, while others are unwinding bearish wagers against stocks and bonds. In the options market, equity traders are gearing up for short-term bets for more Fed-spurred market fireworks. 

Read more: US PREVIEW: FOMC to Signal Above-3% Rates Through 2025 (1)

Here are the scenarios from JPMorgan’s sales team, from bullish to bearish:  

  • 50 basis point hike, with a dovish press conference from Chair Jerome Powell that suggests the terminal rate comes in at around 4%; best outcome for equity bulls. “SPX likely has one of its best up-days in history,” the trading team led by Andrew Tyler wrote in the note to clients.
  • 50 basis point hike and a hawkish press conference where the Fed thinks growth risks are starting to catch up to inflation risks; S&P 500 up 3% to 4%
  • 75 basis point hike and a dovish press conference. This outcome is a coin flip and would be characterized by an emphasis on the data-driven approach moving forward and could see some commentary on the progress made, directionally if not magnitude, to get the US on the path toward 2% inflation; S&P 500 up 1% to 1.5%
  • 75 basis point hike and a hawkish press conference. Powell to focus on the remaining inflation risks and that the Fed has a ways to go but is making progress. A 4.50% terminal rate may not see bonds react violently; S&P 500 flat to down 0.5%
  • 100 basis point hike and a dovish press conference. This could feed into the front-loading hike narrative especially if the Fed wants to end the tightening cycle in 2022. This would be a negative shock to markets, with yields rising and tech stocks sinking; S&P 500 falls 3% to 5%
  • 100 basis point hike and a hawkish press conference: best outcome for equity bears who are positioned for stocks to set fresh lows. This outcome would likely mean that the Fed sees the terminal rate above 5% and believes that growth prospects are no longer under consideration. This could potentially portend a series of 100bps hikes; S&P 500 falls more than 5%

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