Fed Announcement Day Mildly Bullish since 2008

The Fed has already raised rates twice this year and according to CME Group’s FedWatch Tool, there is currently a 100% probability that they will raise rates again tomorrow when their meeting concludes. Up until recently, the Fed was widely expected to raise raises by 0.50, but there is currently (~3 pm est) a 94.5% probability of a 0.75 increase. Regardless of the actual magnitude of the rate increase, the bond market has already done much of the Fed’s work for it already and the opportunity to “get ahead” of inflation seems long gone now.

In the chart above the 30 trading days before and after the last 113 Fed meetings (back to March 2008) are graphed. There are four lines, “All,” “Up,” “Down,” and “Rate Hike Days.” Up means the S&P 500 finished announcement day with a gain, down it finished with a loss or unchanged. In 113 Fed meetings, there have been just 11 rate increases. These 11 increases are represented by Rate Hike Days. S&P 500 trading leading up to recent hike announcements has clearly been different with a bearish bias in the 10 trading days before the announcement. Of the 11 hike days, S&P 500 was down 7 times and up 4 times with an average gain of 0.23% on all 11. This year’s rate hikes were well received by S&P 500 with gains over 2% on March 16 and May 4. On the day after the last 11 rate hike announcements, S&P 500 has declined 0.69% on average.

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