Keep an Eye on These Sectors Post-Fed

The FOMC will announce their latest monetary policy decision at 2 p.m. ET today

by Karee Venema

Published on Sep 17, 2015 at 10:40 AM
Updated on Sep 17, 2015 at 10:45 AM

Unless you live under a rock, you know the Federal Open Market Committee (FOMC) is slated to release their latest policy statement at 2 p.m. ET today, followed by a press conference from Fed Chair Janet Yellen. According to Bloomberg, the market is pricing in a 32% probability the central bank will raise interest rates -- down from 48% in the last month -- as volatility in China has stoked concern over the country's stability.

Should the Fed raise interest rates, it will be the first time the central bank has done so in nine years. Looking back over the past 40 years, Schaeffer's Senior Quantitative Analyst Rocky White found 10 occurrences where the Fed raised interest rates for the first time in at least a year -- and broke down the numbers to see how the S&P 500 Index (SPX) historically reacted in the wake of these decisions.

Based on the charts below, it looks as if the SPX experiences short-term struggles in the wake of the interest-rate hikes. Specifically, the benchmark averages a one-month loss of 1.4%, and is positive just 30% of the time. Going out one year, however, it appears the market tends to stabilize, as the SPX averages a 12-month gain of 10.8%, and is positive 80% of the time.


Here's another perspective. It plots the price action of the S&P 500 Index along with the federal funds target rate since 1975.


Drilling down on specific sectors, energy turned in outperformance in both the short- and long-term following the 1999 and 2004 rate hikes -- with the Energy Select Sector SPDR ETF (XLE) notching one-month gains of 1.9% and 3.1%, respectively. These widened to a respective 9.4% and 42.1% when going out one year.

On the flip side, financials saw a short-term drop following interest-rate adjustments in 1999 and 2004, with the Financial Select Sector SPDR ETF (XLF) shedding 6.1% and 2.1%, respectively, in the ensuing one-month period. Going out one year, this price action diverges, with the XLF surrendering 6.7% in 1999, and adding 3.8% in 2004.

Airlines, meanwhile, performed well following the 1997 interest-rate hike, with the NYSE Arca Airline Index (XAL) boasting a one-month return of 7.2% and a one-year gain of 78.9%. In 2004, however, this price action swung the other way, with XAL down 19.6% in the month subsequent to the Fed's action, and 14.5% the following year.


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earning announcements before it's too late!



NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories

Look Who's Going Bankrupt Next in America
Porter Stansberry is making a concerning prediction.
First Week in April Provides More Coronavirus-Related Volatility
A slew of coronavirus-related news sent markets on another weekly roller coaster ride
Netflix Stock Heading into Historically Bullish Quarter
NFLX's 10-day moving average has stepped up as support lately
The Latest Investor's Guide to Precious Metals
Learn how to protect savings and maximize returns by investing in precious metals.