“I feel like the market is pricing in a best-case scenario on both of these things,” Frederick said. “This is a good time to be a little bit cautious rather than jumping on board with this rally as it is.”
“We’ve had a tremendous run in the S&P 500 since Dec. 26,” Frederick added. “We’re only a few percentage points away from an all-time high. I’m not saying we won’t see an all-time high this year, but to have it happen this quickly is a bit surprising.”
Stocks initially moved higher on Tuesday as the Federal Reserve kicked off its two-day policy meeting on Tuesday. Market expectations for a rate hike are at zero, with most investors pricing in no change in policy. However, investors will look for clues on the Fed’s economic outlook.
The Fed is also expected to lower its interest rate forecasts — or “dot plots” — to show little or no further tightening in 2019. With global economic growth appearing to slow, most market participants anticipate the U.S. central bank to adopt a cautious tone.
“My expectations are that the Fed will maintain their dovishness,” said Gregory Faranello, head of rates at Roberts & Ryan. “The eyes will be on the dot plot, so I expect some tempering there as well.”
“The one potential are of concern would be if the data was not cooperating with the pivot,” Faranello said. “When we look at what’s going on on a global basis, [Fed Chairman Jerome Powell] has pointed to the headwinds, and those headwinds are still there.”
At its January meeting, the Fed indicated it will be “patient” in raising rates. That shift came after the central bank raised rates in December, sparking concern the Fed may be tightening too fast.
Stocks have been on a tear since the Fed’s last meeting in late January. In that time, the S&P 500 has risen more than 5 percent. The broad index is also up more than 12 percent for 2019 in part because investors expect less policy tightening for the year.
The rally could extend further as several investors are still on the sidelines. A survey put together by Bank of America Merrill Lynch found the allocation of global stocks among respondents was the lowest since October 2016. Given the market’s gains this year, investors underweight stocks could be enticed to increase their equity exposure, thus lifting prices even higher.
—CNBC’s Spriha Srivastava and Sam Meredith contributed to this report.
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