Stocks Jumping Heading Into FOMC Meeting

Following up on the blurb about gains before a FOMC interest rate decision, stocks are poised to gap higher this morning by more than +0.5%.

There have been only two meetings in 20 years when stocks were this strong the day before and morning of a FOMC decision. Those were May 16, 2000 and January 28, 2009. Both times, the S&P 500 continued to rise from the open to the close...then dropped at least -4% over the next three days.

A sample size of two isn't very helpful, so let's expand the sample by relaxing the parameters. We'll look for all times the S&P rallied 0.5% or more the day before the meeting, then gapped up 0.25% or more the morning of. Results are given in Figure 1.

The same pattern is evident. Further strength through that day's close, and then weakness in the days following, before strength in the medium-term (we wouldn't read anything into the longer-term returns based on a two-day pattern).

This is all a wildcard, but historically at least, stocks have tended to struggle in the days following instances when traders were already optimistic heading into the FOMC's decision.