Investors are gearing up for another assessment of the global economy when the Federal Reservereleases the minutes from its March meeting later on Wednesday.
Stewart Warther, a U.S. equity and derivatives strategist at BNP Paribas, said the markets were rewarded with dovish comments from Fed Chair Janet Yellen's speech last week, but thinks Wednesday's minutes will be slightly less accommodative.
"I think the key here will be the assessment of the balance of risks and seeing where all of the committee members fall," he said. "In the December minutes, you actually saw that 13 members of the FOMC thought that risks were balanced and only three saw them to the downside."
This time around, Warther expects more members to take a negative stance on global risks. "This is not really expressed in the statement itself, so you could see the market having a somewhat bearish reaction because of this downgrade of the balance of risk outlook," he added.
Some expect the Fed to use the minutes to begin to prepare the markets for a June rate hike, but Stewart doesn't think a liftoff that soon is on the table. "Financial conditions are so sensitive to this notion of Fed liftoff and we really don't see [the Fed[ as wanting to put more risk premium back into the market," he said.
Investors are pricing in an 18% chance of a June rate increase and a 40% probability for September.
Meanwhile, while the broad S&P 500 remains flat for the year, it gained 2.2% over the past month. Warther expects a gradual appreciation over the near term: 2,050 by June and 2,150 by year's end. The S&P 500 currently trades at around 2,045.
"In the near term, I think that some of the market may be overbought," he said. "About 90% of the S&P 500 is trading above its 50-day moving average."