How Stocks, Gold, Bonds, and the Dollar Perform On Fed Days

Stocks and gold fare better on Fed days than bonds and the dollar

Senior Quantitative Analyst
Jun 14, 2017 at 6:30 AM
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The Fed is expected to raise rates today for the fourth time since the financial crisis. The interest rate will be a non-event unless the Fed does anything besides a 25-basis-point hike. Fed decision days, however, have the potential to spark big swings in asset prices, as investors process the policy decision and subsequent press conference with Fed Chair Janet Yellen. This week, I’ll look at how stocks and other assets have performed around Fed decision days.

Stocks Fare Better on Fed Days

The table below shows how the S&P 500 Index (SPX) has behaved on Fed days. The two columns on the left summarize Fed days versus typical days since 2012. Using the average return, Fed days have shown increased bullish tendencies, averaging a return of 0.22% for the SPX, which outperforms the usual return of 0.05%.

The outperformance comes even though the percentage of positive returns for Fed days and typical days are almost identical. The reason for the outperformance: upside volatility. When stocks close positive on Fed days, their returns are higher than the usual positive days. The S&P 500 has not experienced the increased volatility on down Fed days.

The two columns on the right show the intraday range of the index, which is the difference between the high and low during the trading day. As you would expect, the intraday range is higher on Fed days compared to other days, averaging 1.19%, versus 0.93%.

S&P 500 Since 2012

Fed Days Affect Gold and Stocks Alike

Stocks aren't the only investment affected by Fed policy. Below is data that might give us insight on what to expect from some other assets today.

Gold has behaved somewhat like stocks on Fed days since 2012. The SPDR Gold Trust (GLD) maintains a higher average return on Fed days compared to typical days, but the percentage of positive returns is slightly lower than usual. Unlike stocks, GLD shows more volatility to both the downside and the upside, while stocks showed higher volatility to only the upside. This has led to a much higher intraday range for gold on Fed days compared to typical days. The trading range for GLD increases from 0.92% on normal days to 1.63% on Fed days.

GLD Since 2012

Bonds Don't Budge As Much On Fed Days

This next table shows how bonds have reacted on Fed days. Looking at the average return, Fed days seem to affect bonds less than stocks and gold. The average return on Fed days is closer to typical days for the iShares 20+ Year Treasury Bond ETF (TLT) when compared to the S&P 500 or GLD. The Fed day impact, though, is clear when looking at the intraday range for TLT, which is much higher on Fed days compared to other days.

TLT Since 2012

Dollar Intraday Range Doubles On Fed Days

Finally, the table below looks at the PowerShares DB US Dollar Index Bullish Fund (UUP) to see what to expect from the dollar on Fed days. Interestingly, every asset we’ve looked at shows a lower percent positive on Fed days compared to usual days. Stocks and gold, though, have tended to outperform, as measured by average return, while bonds and the dollar have tended to underperform. Looking at the intraday range of the assets, Fed days affect the dollar the most. Its intraday range essentially doubles on Fed days, increasing from 0.41% to 0.80%.

UUP Since 2012


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