Federal Reserve

will raise interest rates Tuesday. About that, there is almost no debate. There are a few dissenters about the size of the tightening, but most folks foresee a 50 basis-point hike.

If recent history is any guide, major stock proxies should rally in the wake of the expected Fed action. The

Dow Jones Industrial Average

has risen an average of 0.7% on the days of the five rate hikes that have occurred since Aug. 24, 1999; the

S&P 500

has risen by an average of 1.1% and the

Nasdaq Composite

by 1.9%.

Expectations for a similar move helped spur a solid rally

Monday, when the Dow rose 1.9%, while the Comp and S&P 500 gained 2.2% each.

"By virtue of the fact we've rallied over last

five rate hikes, people are trying to get a little bit of a head start" on the next one, said Bryan Piskorowski, market analyst at

Prudential Securities


But it's different this time around, according to Gregg Schreiber, vice president of institutional futures sales at

Bear Stearns

. And not just because the Fed is expected to tighten by a half percentage point vs. the quarter-point hikes previously unleashed.

The rallies after recent Fed rate hikes were reflective of a "cocky" market where the attitude was "this market is invincible. Interest rates aren't important," Schreiber recalled. "People are no longer saying that."

The fact investors


believed interest rates and the Fed were irrelevant to stocks is something that still drives veteran market participants batty. But the market action since mid-March has convinced all but the most ardent believers that interest rates


matter, even to technology stocks. (For the holdouts: It's not that higher rates inhibit growth for tech firms, but that they restrain the

multiple investors are willing to pay for said growth.)

Monday's advance notwithstanding, Schreiber said there's no clear gauge among his institutional clientele -- who are more of the market-timing variety vs. buy and hold -- as to how investors are gaming Tuesday's

Federal Open Market Committee


Beginning late last week, some players who'd already diminished their exposure to equities were "taking some decent positions" following the benign

retail sales


Producer Price Index

reports, he said. But at the same time, those buyers have been extremely cautious, evinced by the diminutive trading volumes in recent days.

Indeed, Monday's rally came amid volume of just 811.2 million shares in

New York Stock Exchange

trading and 1.1 billion in over-the-counter action -- among the lightest trading days of the year for both exchanges.

"There is definitely nibbling. Those taking a more aggressive approach are deploying capital," Schreiber said. "But that can turn on a dime. You get one hairy number and we may be revisiting the lows. It's a 'touch and go' approach."

Clearly, one reason some investors are fearful of touching the market ahead of the FOMC meeting is the fact the

Consumer Price Index

for April is due the morning of the gathering. The consensus estimate is for CPI of 0.1% vs. 0.7% in March.

Another restraining factor is the idea that "it's not what the Fed does, it's what they say."

How many times have you heard (or read) that refrain in the past few days? It was repeated Monday several times and served as a rationale to some investors who chose to sit out the action.

What's missing from that discussion is a reminder that the Fed adopted

new guidelines this year for communicating its policy decisions and viewpoints.

Beginning with the Feb. 1-2 meeting, the FOMC has basically limited itself to three choices in regard to how its views the risks to its goals of "price stability and sustainable economic growth," as follows:

  • Balanced with respect to prospects for both goals.
  • Weighted mainly toward conditions that may generate heightened inflation pressures.
  • Weighted mainly toward conditions that may generate economic weakness.

Since it would be contradictory for the central bank to hike rates and then say the risks are weighted toward economic weakness, there really are only two choices this time around from what one trader called the "Chinese menu" of Fed options.

Judging by the economic data -- yes, including recent signs of economic slowing -- and the rhetoric from Fed officials, my guess is the FOMC will tighten by 50 basis points and say the risks remain weighted toward inflation. Granted, there may be a few sentences accompanying that statement to mollify its impact, and many contend the stock market has already "priced in" a vigilant Fed. But it's hard to imagine how equity investors can take solace in such a viewpoint for very long.

Then again, there is precedence.

Meawhile, register your prediction here:

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Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at .