Indicator of the Week: The Boom-or-Bust Nature of Fed Minutes

The SPX tends to outperform in the days following the release of Fed minutes -- but losses tend to be outsized, too

Senior Quantitative Analyst
Aug 19, 2015 at 7:30 AM
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The minutes from the latest Federal Open Market Committee (FOMC) meeting will be released today at 2 p.m. ET. Investors will read them for an indication of whether or not the Fed will raise interest rates next month. This week, I'm taking a look at prior days when the central bank released minutes to see what stocks did. Maybe it will give us some insight on what to expect today and for the rest of the week.

Fed Minutes Released: The table below gives a summary of how the S&P 500 Index (SPX) has performed since 2013 on days the Fed minutes were released. I also show data for the next day -- and then, for comparison, I show the return for all days. Looking at the average return, the Fed minutes days are a non-event. The average return of 0.06% exactly matches the typical day since 2013. However, unlike other days, these days have been positive less than half the time. On a good note, looking at the average positive return, Fed minutes days have had more upside volatility than the typical day. 

Perhaps investors need a day to fully digest the Fed minutes? The day after the release of Fed minutes has typically been quite bullish when you look at the average return of 0.22%, with 71% of the days being positive. The bad news is that volatility is higher the day after -- as measured by the standard deviation of returns -- and especially volatile to the downside. A typical down day since 2013 has registered a 0.54% loss, but on the day after Fed minutes get released, the down days have averaged a loss of 0.93%.

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Rest-of-Week Returns: Stock returns are more interesting in the sessions after the Fed minutes are released, rather than the day they are released. The table below shows how the SPX has done the rest of the week (Thursday and Friday) after Fed minutes are released. In general, stocks have performed quite well the rest of the week, averaging a gain of 0.34% and positive 81% of the time. Compare that to the typical Thursday-Friday return of 0.19%, positive 65% of the time. Echoing the day-after data above, though -- volatility is higher, and especially to the downside, the last two days of these weeks.

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