The Federal Reserve’s strategy of supersize interest rate hikes gets much of the blame for triggering a bear market in stocks in 2022, but investors might be surprised by a look back at how equites have performed on the days this year when policy makers have slammed on the metaphorical monetary-policy brakes.
The S&P 500
has fallen around 10% overall since Fed Chair Jerome Powell and his colleagues began the rate hiking cycle in mid-March, or three meetings ago, noted analysts at Bespoke Investment Group, in a note.
But the index, they observed, has rallied at least 1.5% on each of the three Fed meeting days during this period.
The large-cap benchmark gained 2.2% on March 16 after Powell’s first rate hike of 25 basis points, or a quarter of a percentage point. On May 4, the S&P rose 3% after Powell’s second hike of 50 basis points, which was the largest such move since 2002. And at the last meeting on June 15, the S&P 500 gained 1.4% on the day following a rate hike of 75 basis points, the largest move since 1994 (see chart below).
Bespoke Investment Group
“You can see that an initial drop occurred right after the 2 PM ET rate decision all three times, but then stocks rallied hard for the remainder of the day once Powell’s press conference began,” the analysts wrote.
Fed-funds futures traders have priced in a 75% probability of another 75 basis point hike on Wednesday, with a roughly 25% chance of a super-size 100 basis point move. The Fed will announce the outcome of the two-day policy meeting at 2 p.m., with Powell’s news conference slated to begin at 2:30 p.m.
A 75 basis point…