Markets are gearing up for a key Fed decision. Here’s how stocks could react to the most likely outcomes.

• Investors think that a rate cut this week is nearly a foregone conclusion.

• JPMorgan thinks the most likely scenario is that the Fed will issue a “dovish cut.”

• The bank laid out how much stocks could rise or fall for each potential outcome of the meeting.

The moment investors have been waiting for all year is probably at hand.

Markets have been clamoring for the Federal Reserve to resume its rate-cutting cycle, and the central bank finally looks poised to trim its target rate at this week’s policy meeting. The odds for a cut have risen steadily in the last few weeks thanks to tame inflation data and recent signs of weakness in the job market.

On Monday, the market priced in a 96.2% chance the Fed would trim its target rate by a quarter of a percentage point on Wednesday.

JPMorgan also thinks a Fed rate cut is overwhelmingly likely. The bank says there’s a 95% chance the Fed will cut rates in some capacity, and a 87.5% chance it’ll be a 25 basis-point cut, according to the scenarios it laid out in a recent note.

“We see a Dovish Cut as the most likely outcome, producing a positive gain on the day,” Andrew Tyler, the global head of market intelligence at JPMorgan, said, citing research from the bank’s chief US economist.

Markets are expecting it to be a potentially volatile day for trading. S&P 500 options are pricing in an 88 basis point move on the day of the rate decision.

Here’s how JPMorgan thinks stock could react to a range of potential outcomes.

The bank sees this as the most likely outcome of the meeting, pegging a 47.5% probability that the central bank will issue a quarter-point cut and issue dovish commentary around the state of the economy.

In this scenario, the S&P 500 could gain around 1% immediately after the rate cut, Tyler said, which would imply the benchmark index rising to around 6,650.

But that could eventually lead to more downside for stocks, the bank added.

“As we look toward the month-end, Fed Day may act as a ‘sell-the-news’ event as investors take time to consider the macro environment, the Fed future reaction function, potentially stretched positioning, a temporarily weaker corporate buyback bid, waning Retail investor participation, and quarter-end rebalancing,” Tyler said.

Stocks could fall as much as 5% if those headwinds take hold in the coming weeks, he wrote, though he suggested that a sell-off could make room for several buying opportunities for investors. If there is a sell-the-news reaction in stocks, here are some areas of the market the bank says it would consider buying: