The Federal Open Market Committee has kicked off its two-day policy meeting, where central bankers are expected to announce an increase of 0.75 percentage points, according to DataTrack Research, the Fed’s decision on Wednesday once again benefited the stock market. It is possible -Founder Nicolas Kolas.
According to Dow Jones market data, the last four times the Fed raised interest rates in 2022 – March 16, May 4, June 15 and July 27 – S&P 500 SPX,
increased by 2.2%, 3%, 1.5% and 2.6%, respectively.
“Wednesday of Fed meeting week this year also sees the highest daily S&P return of 1.8 percent on average and the best win rate for the 5-day period,” the Wall Street veteran wrote in a Tuesday note.
“There’s no guarantee that this will happen again this Wednesday, but we wouldn’t be surprised to see traders push this fact tomorrow,” Kolas said.
Those surges have so far proved fleeting, with the S&P 500 in a bear market and down more than 19% for the year to date. In fact, the Fed’s aggressive hardening momentum as it attempts to rein in stubborn inflation gets much of the blame for the market’s 2022 recession.
US stocks started the week with the S&P 500 up 0.7% on Monday. Although, Shares came under pressure on Tuesday As investors held firm to the expectation of another aggressive rate hike. Dow Jones Industrial Average DJIA,
was down about 400 points, or 1.3%. up 1.3% in the S&P 500 and the Nasdaq Composite comp,
According to Kolas, the phenomenon of “fed drift”, which sees it Equities have risen in and through FOMC meetings And the day after tomorrow hold on to your profit, and then do not work.
The New York Federal Reserve Bank studied data from 1994 to 2011, showing that the S&P 500 index normally rose 24 hours before the scheduled FOMC announcements. It then rose sharply on the morning of the announcement, and the average was flat both in the hours immediately following the decision and the next day.
According to CME’s FedWatch tool, the market is up 75 basis points, with futures showing a 16% chance of an absolute percentage increase. Investors hope the Fed will not only set a new fed funds rate but will give them a glimpse of how high it will be in the future.
According to Larry Adam, chief investment officer at Raymond James, the company expects an additional 75 basis points before the end of the year, which will be added to the November and December meetings and bring down the policy rate to 4%.
“First, the actions taken so far have already affected the more interest-rate sensitive sectors of the economy, particularly the housing market,” Adam wrote in a client note on 16 September. “Second, although the easing of inflation has been more stubborn than expected, there are a number of real-time indicators that suggest it will cool further in the coming months (for example, promotional activity, declining sea freight rates, lower commodity prices). “
This is why Adam argues that the worst of this bear market is “likely behind us” as inflation will ease over the next year, but the path is “not likely to be swift or smooth”.
“In the coming weeks, the bear market may take time to digest the inflation data flow with back and forth trading,” Adam wrote. “With this in mind, we recommend not chasing rallies and using pullbacks as opportunities to accumulate preferred stocks for the next bull run.”