Stocks Jumping Heading Into FOMC Meeting

Jason Goepfert
2015-12-16
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Following up on the blurb about gains before a FOMC interest rate decision, stocks are poised to gap higher this morning by more than +0.5%.

There have been only two meetings in 20 years when stocks were this strong the day before and morning of a FOMC decision. Those were May 16, 2000 and January 28, 2009. Both times, the S&P 500 continued to rise from the open to the close...then dropped at least -4% over the next three days.

A sample size of two isn't very helpful, so let's expand the sample by relaxing the parameters. We'll look for all times the S&P rallied 0.5% or more the day before the meeting, then gapped up 0.25% or more the morning of. Results are given in Figure 1.

20151216_fomc_gap

 

The same pattern is evident. Further strength through that day's close, and then weakness in the days following, before strength in the medium-term (we wouldn't read anything into the longer-term returns based on a two-day pattern).

This is all a wildcard, but historically at least, stocks have tended to struggle in the days following instances when traders were already optimistic heading into the FOMC's decision.

 

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