Why Sweating the Fed Decision Can Wait Til Tomorrow

The SPX tends to outperform on Fed decision days, but usually struggles in the ensuing day and week

by Alex Eppstein

Published on Sep 21, 2016 at 10:17 AM

All eyes are on the Fed today, as the central bank gears up for its policy announcement this afternoon. While no action is expected to be taken this month, the Fed statement could have a huge impact on stocks -- as evidenced by the global reaction to the Bank of Japan's (BoJ) new efforts to control the yield curve on 10-year government bonds. But, historically, what type of impact do Fed days have?

Schaeffer's Senior Quantitative Analyst Rocky White ran the numbers, looking at S&P 500 Index (SPX) performance since 2012 during the days in which the central bank provides a policy update. Here's a snapshot of SPX performance on Fed days, versus anytime returns:

fed days 2012 september 21

As you can see, the S&P has tended to outperform on Fed days since 2012, based on the average return of 0.24% -- easily topping the anytime return of just 0.05%. In reality, this has more to do with the magnitude of upside moves than it does the percent of positive returns, which are equal at 54%. Put simply, the average positive Fed day results in a 0.9% pop, versus an average anytime gain of 0.6%.

That said, the SPX has had some relative struggles in the day and week after sessions in which the central bank announces its policy decision. The day after these updates sports a negative average return -- specifically, a loss of 0.1% -- while the one-week return (0.08%) lags the anytime one-week return (0.23%). In other words, if past is precedent, the S&P 500 could outperform today, but subsequently hit speed bumps over the next few sessions.

White also looked at the numbers, going back to 2010. As you can see in the first chart below, the general trend previously mentioned holds up, even under the longer time frame. Underneath that chart is a list of all Fed days -- as well as the central bank's chosen action on interest rates -- dating back to 2009.

fed days 2010 september 21

fed days list 1a september 21
fed days list 2 september 21


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