The Federal Reserve cut rates by 50 basis points at its September meeting. RBC Capital Markets Equity Derivatives Strategist Amy Wu Silverman thinks it may take markets some time to process the cut given the debate over whether Fed would cut by 25 or 50 basis points.

She describes the first half of the year as being "all about FOMO and MOMO," noting that the options market saw "historic" call buying in AI-related names. However, she says that since the August 5 sell-off, even though things have normalized, "Underneath the surface, there has been a lot of tension. There has been a lot of uncertainty." She also observes that some people are starting to hedge their portfolios. So, what is driving that uncertainty? "Volatility potholes," Wu Silverman says, referring to things like the election.

When it comes to the election, Wu Silverman points out that it's possible the Fed may not know who the winner of the 2024 presidential election is when it makes its November rate decision, given that it's only two days after Election Day. "They [the Fed] say politics doesn't matter, but look, could that influence their decision or not?" she adds.

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This post was written by Stephanie Mikulich.