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This S&P 500 level signals trouble for stocks, trader says

The stock market remains stuck in a range because investors are second-guessing whether the Federal Reserve will raise interest rates next week, despite overwhelming evidence to the contrary, TJM Institutional Services Managing Director Jim Iuorio said Friday.

The market sees just a 12 percent chance of a September hike, according to the CME's FedWatch Tool. The odds on Wall Street fell this week following dovish statements from Fed Governor Lael Brainard on Monday. In the previous session, stocks sold off in part on hawkish statements from Boston Fed President Eric Rosengren.

Those mixed signals are leaving investors with lingering doubts and capping a rebound from the S&P 500's recent intraday low on Monday, Iuorio said.

"Everybody kind of says to themselves, 'OK, they're not going to hike,' but in the back of their mind going, 'can they surprise us?' And that's where I think some of the negativity comes from," the long-time trader and CNBC contributor told "Squawk Box."

The Fed has not raised interest rates since increasing its benchmark by a quarter percent from near zero in December. Persistently low rates have sent investors piling into stocks and riskier assets in a hunt for returns.

On Friday, S&P 500 futures were trading just above the index's recent intraday low of 2119.12. Iuorio attributed the weakness to traders squaring their positions ahead of the Fed decision next Wednesday, but said the move warrants watching.

"Those lows were put in when we thought the Fed was going to hike. If we go below those lows, even after we think the Fed is not going to hike, then we have a problem that's more serious," he said.


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