Fed days have produced a weak record under Powell but here’s the time when stock-market performance really gets dicey

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Wednesday marks an important Fed decision day on Wall Street, the final one of 2021, but one could hardly blame investors for bracing for an ugly response to the central bank’s policy update.

The analysts at Bespoke Investment Group write that for the S&P 500 index
SPX,
-0.27%
market reaction has been typically weak, and the most recent note highlights that markets tend to unravel not upon the release of the policy update, at 2 p.m. Eastern Time and the usual press conference a half-hour later, but in the final hour of trade on day that the Fed updates its policy stance.

Read: Powell says time to retire ‘transitory’ when talking about inflation—and stock markets tank

“Historically, the S&P 500 has averaged nice gains on Fed days, but price action has been weaker during Chair Powell’s tenure, especially in the final hours of trading following the 2 PM ET announcement and subsequent press conference,” writes Bespoke, in a Wednesday research report.

Bespoke notes the stock market’s reaction to Powell, in particular, had been weaker before the pandemic, “during Powell’s pressers and would average a full-day decline of 20 [basis points].” 

However, Powell has averaged a 29 basis-point gain by the close since the March 2020 meeting, when COVID-19 pandemic woes were buffeting financial markets most intensely.


Bespoke Investment Group

For Wednesday’s Fed meeting, it is widely assumed the central bank will double the pace at which it is tapering its asset purchases, to $30 billion from $15 billion, at the conclusion of its gathering later Wednesday. The Fed’s dot plot projections of interest rates also is expected to show more rate increases by 2024, around nine from six. That would place the median dot close to the Fed’s assessment of the neutral rate of 2.5%, where Fed policy is neither helping the economy expand or trying to slow it down.

Read: It’s Fed day. Here are two big questions for markets from a trading veteran.

Here’s how that performance has looked.


Bespoke Investment Group

Meanwhile, the S&P 500, the Dow Jones Industrial Average
DJIA,
-0.31%
and the Nasdaq Composite Index
COMP,
-0.53%
were all trading slightly lower on Wednesday.

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