By Sue Chang, MarketWatch

Stocks have fallen an average of 2.2% on the third rate hike

As much as Julius Caesar's assassination on the Ides of March signaled an inflection point in Roman history, March 15 may also mark a watershed moment for the U.S. stock market with the Federal Reserve poised to seek closure to its loose monetary policy regime.

"The coming week has the potential to be huge for trading opportunities," said Colin Cieszynski, chief market strategist at CMC Markets, in a note (http://www.cmcmarkets.ca/en/blog/2017/03/10/north-america-trading-outlook-week-march-12-2017?link=mktw). "Everything centers around the Ides of March...with a number of key developments coming out both on [March] 15 and 16."

See also: Will the Ides of March bury the stock market's record run? (http://www.marketwatch.com/story/will-the-ides-of-march-upend-the-stock-markets-record-run-2017-02-27)

The Fed's monetary policy decision on Wednesday will take center stage with markets nearly 100% certain of a rate increase following solid February jobs data (http://www.marketwatch.com/story/us-adds-235000-jobs-in-february-unemployment-falls-to-47-2017-03-10). The focus will be on the Fed's statement rather than the decision itself.

"The commentary will help determine how many more hikes the market has to get used to and then when it has to start preparing," said Bob Pavlik, chief market strategist at Boston Private Wealth.

If the central bank strikes a hawkish tone, it could trigger a selloff in the market although Pavlik expects Fed Chairwoman Janet Yellen to keep her comments positive to avoid upsetting the market.

See also: This chart shows why the stock-market rally should survive the Ides of March (http://www.marketwatch.com/story/why-the-stock-market-rally-should-survive-the-ides-of-march-in-one-chart-2017-03-01)

Still, investors should keep in mind is that this is the third hike in the current tightening cycle, and history is working against the market.

Since 1971, stocks have fallen an average of 2.2% on the third hike over the following three months, said Tom Lee, a managing partner at Fundstrat Global Advisors.

To be sure, there are always exceptions. Stocks rose sharply in the following three months after the Fed hiked for a third time in both June 1984 and September 2004, he said.

Most analysts agree that stocks have largely priced in a rate hike of 25 basis points. But there are still bargains to be found in automobile, semiconductors, consumer finance and insurance sectors, which are cheap but benefit from a hawkish Fed, according to Bank of America Merrill Lynch.

Aside from the Fed, eight other central banks are scheduled to meet this week, including the Bank of Japan and the Bank of England, providing a quick insight into whether other countries will adjust their policies in response to the Fed.

Meanwhile, President Donald Trump is expected to present his preliminary budget request to the Congress on Thursday, outlining his administration's priorities. It will serve as a crucial test for whether the euphoria that propelled stocks to record territory in anticipation of tax reforms and ramped up fiscal spending under Trump is warranted.

The S&P 500 has risen 4.5% and the Dow Jones Industrial Average has gained 5.3% in the first 50 days since Trump took office, the best ever for a GOP president (http://www.marketwatch.com/story/how-trumps-stock-market-ranks-in-his-first-50-days-in-office-2017-03-10).

However, if his budget proposal fails to meet the market's expectations, it could spark a major unwinding in positions, leading to a sharp drop in prices.

"Thursday could be the day the instant speed of markets crashes into the glacial speed of government," said Cieszynski.

As reality settles in, inflated optimism is also expected to eventually wear off as investors come to terms with the complex work of rolling out tax cuts and implementing fiscal stimulus.

"They've had nothing but rose colored glasses on so they will sober up a bit," said Bruce McCain, chief investment strategist at Key Private Bank, who predicted it will take about three months for the Trump bubble to deflate.

(END) Dow Jones Newswires

March 23, 2017 17:28 ET (21:28 GMT)