Wednesday is a Fed Day – a day in which the Federal Reserve concludes their scheduled meeting and releases a policy statement. Fed Days have historically shown a bullish inclination (up until Powell took over last year, as I showed on Sunday). One interesting aspect of Fed Days that I covered in the book is that the bullish inclinations have basically played out prior to the actual Fed announcement. Sharp moves often occur after the announcement, but they have not been consistently bullish or bearish historically. This can be seen in the two studies below.

A couple of notes:

1)      The 2^nd test is showing 1 less instance, because my data provider was missing intraday data for 1/30/2007, which was the day before the Fed Day.  So no purchase was triggered.  But in looking at ES futures data that day, it closed up a mere 1 tick (0.25 points).  So that trade had very little impact on results.

2)      There were a few days where the Fed announcement came out before 2pm.  (Between 2010 and 2012 they had some early announcements at 12:30.)  Additionally, the formal announcement for a long time was 2:15pm.  In any case, making minor adjustments for the actual release time would make very little difference, and the point would remain exactly the same.  The bullish edge has all been realized prior to the actual announcement.  After the announcement, returns have been very inconsistent.

Have a happy Fed Day tomorrow!

Want research like this delivered directly to your inbox on a timely basis? Sign up for the Quantifiable Edges Email List.

Fed Days have a long history of showing a bullish tendency, and we have a large number of Fed Day studies to refer. For those that are unaware, a Fed Day is simply a day where the Federal Reserve completes a scheduled meeting and provides a policy announcement. Meetings typically take place 8 times per year, and in recent years the meetings have all been 2 days in length, with the 2nd day being the “Fed Day”. Two good places to find studies related to Fed Days are the Quantifiable Edges Guide to Fed Days book, and the Fed Study category on the blog.

Below is a long-term look at Fed Day performance since Paul Volcker became chairman in August of 1979.

That is a long and fairly steady tendency we see for the market to rise on Fed announcement days. But recent instances have struggled. Below is a breakdown of Fed Day performance by Fed chairperson.

I don’t know Mr. Powell. He might be a wonderful, generous, caring person who is fun at parties, has great dance moves, and is kind to animals. But for some reason, the market sure seems to hate him. Fed Days under every other chairperson since 1979 have shown a strong upside tendency. But Mr. Powell’s Fed has garnered a negative reaction every time. Here’s the full list since he took over last year.

Nothing good to see here. But perhaps we should have realized the market hated him when the SPX closed down over 4% on his first day on the job (2/5/18).

Of course the Powell comments are mostly tongue in cheek, but it is worth noting that Fed Days have been mired in a previously unprecedented losing streak lately with seven negative reactions in a row.

Want research like this delivered directly to your inbox on a timely basis? Sign up for the Quantifiable Edges Email List.