The Fed is not expected to raise rates at next week's meeting
A Fed meeting is scheduled to wrap up next Wednesday, June 19. The Fed is expected to keep rates steady this time, but there's always a chance at some volatility based on the wording in the committee's statement. At its next meeting at the end of July, the Fed is expected to lower rates for the first time since raising them from near zero percent in December 2015. Below, I have some numbers on how markets have behaved during Fed weeks.
Fed Weeks Tend to Be Bearish for Stocks
The table below shows how the S&P 500 Index (SPX) has performed during Fed weeks versus other weeks since 2015. Fed weeks have been somewhat bearish, averaging a loss of 0.30%. More than half of the returns have been positive, but the negative returns have been higher than the positive ones, giving the negative average return. As you would expect, there's more volatility during Fed weeks vs. any weeks, measured by the standard deviation of returns.
Stock returns have fared better during Fed weeks when the central bank hasn't raised rates. So, maybe it's good for stocks that more increases aren't expected. The weeks the Fed raised rates, the S&P 500 lost an average of 1.41%, with just 44% of the returns positive. Other Fed weeks saw a slight average weekly gain, with 57% of the returns positive.
Monday is the Most Bearish Day During Fed Weeks
The table below shows how Fed week typically progresses. Two days before the Fed meeting -- usually Monday, because Fed days are almost always on a Wednesday -- has been the most bearish day of the week. Barely a third of those days have been positive, averaging a loss of 0.21%. Tuesday has been a consistent bounce-back day, and the only day of Fed week that has averaged a gain. Fed day itself is just barely negative, but positive only 43% of the time. The last two days of the week have generally been bearish, with both days averaging losses and less than half of the returns positive.
Getting rid of the weeks in which rates were raised, the numbers change a bit. Monday has still performed exceptionally poor and Tuesday still looks bullish. The days after the meeting, however, look better for stocks. Looking at the average return, Fed day and the day after show gains, while Friday’s loss is barely below breakeven. Taking out the weeks in which rates get raised, the last two days of the week now show positive returns over half the time.
S&P Intraday Swings on Fed Day
Since the Fed meeting wraps ups in the middle of the trading day, I was curious about intraday volatility. The table below show some numbers on the intraday swings of the S&P 500 on Fed days compared to any day. The intraday range is simply the difference between high and low of the day as a percentage of the close.
Naturally, Fed days average bigger swings than normal days, but they're maybe not as big as expected. Of the 26 Fed days since 2015 in which rates were held steady, the S&P 500 averaged a midday range of 1.04%. The typical trading averages a range of 0.94%.
