Impact of Fed on Short-term Trading

Is there any pattern to trading around the FOMC meeting?

click for larger graph

chart courtesy of Michael Panzner

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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