Impact of Fed on Short-term Trading

Is there any pattern to trading around the FOMC meeting?

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Fedreact

chart courtesy of Michael Panzner

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Michael Panzner, whose charts have been gracing these pages quite regularly, observes:

Since the Federal Reserve began raising interest rates in the tightening cycle that began on June 30, 2004, the stock market has exhibited a curious short-term bipolarity in reaction to the central bank’s actions.

Generally speaking, regardless of which way prices finish up on the day of the hike — usually higher, though last time around they fell by more than 1% — they have tended to swing in the opposite direction 24 hours later.

Some might say that these short-term swings are nothing more than noise, casting little light on what is going on in the wake of the central bank’s widely-telegraphed strategy of boosting rates back towards more neutral levels.

A cynic might argue, however, that rather than having their anxieties assuaged by Dr. Greenspan’s supposedly more investor-friendly and transparent approach, market players remain as confused as ever about where things are — and where they are headed.

Maybe it’s time to change the meds?

What's been said:

Discussions found on the web:
  1. The Nattering Naybob commented on May 4

    Barry, I’m a fan of Mike Panzer too.

    Since 1980, the Naz gained an average 0.53% ten days after an FOMC meeting.

    Since 1998, the Naz lost an average of 0.66% within ten days after an FOMC meeting.

    Since 1980, 124 of 203 times, or 61.08% of the time the Naz closes higher on FOMC meeting days.

    Since 1980, the Naz’s average gain on FOMC meeting days is 0.20%.

    And yes, the average’s show that the day following the FOMC meeting, the Naz is down.

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