UBS cut its estimate for the third quarter to GDP growth of 1.5% from 2.3% and took down its view for the fourth quarter to growth of 1.8% from 2.8%. It now sees the year-end unemployment rate at 8% vs. a prior estimate of 7.8%. The firm cited "the persistence of business uncertainty about both the European financial/economic crisis and the potential US 'fiscal cliff'" for the changes.

"In this setting, we now see even odds that the Fed will initiate a further easing program come September," UBS said. "However, we do not expect any easing to take the form of further Treasury or MBS mortgage bond securities buying programs. Rather, we would expect the Fed to undertake an easing program within its discount window facility. Another easing program also suggests our Fed rate hike call is too early. We now expect the Fed to begin some tightening of policy by early 2014 rather than mid-2013."

If a friendlier Fed is the upside of the slow economic recovery, weakening earnings are the downside as evidenced by the current yawn-worthy reporting season and the unwillingness of companies to show much bullishness about the third quarter and beyond. UBS estimates that every 1% change in GDP corresponds to a 3-4% change in revenues and a 4-5% change in earnings and it believes if the economy follows along with its lower view, equities don't offer much upside from here, no matter what the Fed does.

"Our year-end target for the S&P 500 is 1,375 -- roughly flat from current levels," the firm said. "Should the economic forecasts described above play out, it would be quite difficult for equities to move higher, in our opinion."

In the near-term, Birinyi Associates observed the odds are in favor of a positive move for the S&P 500 on Wednesday. The firm said the benchmark index has risen 67% of the time on FOMC decision days with the average gain coming in at 0.47%. It also notes that a strong majority of economists surveyed by Bloomberg -- 88% -- aren't expecting the Fed to announce new debt purchase plans.

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