The Dow dropped as much as 300 points to start the Tuesday Wall Street trading session as stock market participants collectively hold their breath ahead of planned interest rate hikes.

By midday the Dow, along with the Nasdaq and S&P 500, was still in the red amidst heavy chop in price action and showing signs of weakness. All three indexes were down more than 1% in all the volatility.

The downturn after a positive day across the board on Monday was fueled by fear.

Stock market volatility fuels fear in retail traders

Stock market participants just don’t know what is going to happen from day to day in the stock market.

The constant state of uncertainty is feeding fear among retail traders with almost every opening bell.

Uncertainty is cutting across the U.S. economy from consumers to producers to the federal government.

Mortgage rates continue to climb as inflation holds at 40-year highs, a survey of home builders nationwide showed builder sentiment falling to an eight-year low (declining for nine straight) months (despite an increase in housing starts), farmers are warning of drought-induced lower fall harvest yields, and U.S Treasury bond yields keep rising.

And the biggest fear looming over the stock market is whether the Federal Reserve (Fed) will raise benchmark interest rates tomorrow in line with expectations or send shockwaves through the economy with unexpectedly higher rates.

Traders are waiting for the Fed announcement Wednesday finalizing how much more the central bank will raise interest rates.

Expectations are for 50-75 basis points, but concerns have festered in recent days that the hike could be a 100 basis point increase – or a 1% jump. The current Federal Funds rate range is 2.25%-2.50%

Even Europe is fighting high inflation, as exemplified by the central bank in Sweden raising its base rate by 100 basis points. Sweden’s Riksbank, like the Fed, is determined to push core inflation back down to 2%.

Retail traders must adapt to what lies ahead

Retail traders will need to adapt to this volatile environment as the Fed has no plans to back off plans for higher interest rates.

Whether the announcement tomorrow beats or exceeds rate hike expectations, the stock market is still a highly uncertain environment.

Simpler’s traders remained focused on technical analysis of stock charts with a keen eye for market internals while avoiding getting limited by the trepidation caused by this vortex of volatility.

The key is to apply a working strategy that targets gains despite an uncertain market.