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

Sep 21, 2016 at 10:17 AM
facebook X logo linkedin


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


Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!

 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI