In the past year, decision days at the Federal Reserve have had a notable impact on stocks. Let’s examine how major assets have performed during these crucial moments.
Breakdown of Performance
According to a Wednesday note by Deutsche Bank strategist, Alan Ruskin, the performance of the S&P 500 and 2- and 10-year Treasury yields on Fed decision days over the past year can be summarized as follows:
- S&P 500 index (SPX, -0.16%): The median fall has been 1.2%, with varying ranges. Notably, the July 2022 rate hike resulted in a rally of over 2.6%, while declines of around 2.5% were witnessed in November and December. The mildest reaction, however, occurred last month, with the S&P 500 losing less than 0.1% as the Fed maintained rates since March 2022.
Stocks Swoon on Fed Decision Days under Powell
Bespoke Investment Group has compiled data that supports the idea that stock prices tend to decline on Fed decision days under the leadership of Jerome Powell. The release of policy decisions and the chair’s news conference often coincide with a ‘late-day selloff’, illustrating this trend.
Anticipating the Future
As the Fed prepares to announce its policy decision at 2 p.m. Eastern, it is widely expected to raise the fed-funds rate by 25 basis points, equivalent to a quarter of a percentage point. Following the announcement, Powell will address questions from reporters at 2:30 p.m.
Read: The Fed’s Rate Hike and Investor Skepticism
Stocks have been on a steady rise in 2023 since the Federal Reserve decided not to raise interest rates again in June. Initially, Fed officials had indicated their intention to raise rates by at least 50 basis points in their fight against inflation. However, investors are doubtful that the Fed will proceed with additional rate hikes following Wednesday’s expected move. All eyes will be on the policy statement and the words of Powell, the Fed Chair.
On Wednesday, stocks were relatively stagnant as investors eagerly awaited the Fed’s decision. The S&P 500 experienced a slight decrease of 0.2%, while the Dow Jones Industrial Average inched up by 0.1% in an attempt to extend its longest winning streak since February 2017 to 13 sessions. Conversely, the Nasdaq Composite fell by 0.5%.
See: The Crucial Sentence That Determines the Stock Market’s Initial Reaction
The table provided below illustrates the performance of the dollar against the euro (EURUSD), the Japanese yen (USDJPY), and the Australian dollar (AUDUSD) on Fed Day:
| Currency Pair | Performance | | ————- | ———– | | EURUSD | +0.22% | | USDJPY | -0.38% | | AUDUSD | -0.53% |
Need to Know: Powell’s Silence on Inflation Approaching Zero
Jerome Powell, the Fed Chair, has steadfastly avoided discussing the potential for inflation to reach zero. This factor is of vital importance, yet it remains conspicuously absent from his discourse.
