On Wednesday another Fed meeting will come to an end and another statement regarding monetary policy will we released. As of today, CME Group’s FedWatch Tool is showing a 93.8% chance the Fed will raise rates to a new range of 2.00 to 2.25%. There is also a small 6.2% chance that the Fed raises the range by 0.50%. If the Fed broke from recent tradition and hiked by 0.50%, the market would likely not respond well to the sudden change. Historically down announcement days have been better buying opportunities than positive announcement days.
In the chart below the 30 trading days before and after the last 84 Fed meetings (back to March 2008) are graphed. There are three lines, “All”, “Up” and “Down.” Up means the S&P 500 finished announcement day with a gain, down it finished with a loss. Note how past down announcement days have, on average, enjoyed the best gains over the next 30 trading days.
Of the last 84 announcement days, the S&P 500 finished the day positive 48 times. Of these 48 positive days S&P 500 was down 28 times (58.3%) the next day. Of the 36 down announcement days, the following day was down 21 times (58.3%). All 84 announcement days have averaged 0.39% S&P 500 gains while the day after has been a net loser with S&P 500 declining 0.31% on average. Since the December 13, 2017 meeting, S&P 500 has declined on five of the last six announcement days with an average loss of 0.23%.
As always, please use protective buy and sell stops when trading futures and options.
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