How Stocks Perform After Fed Rate Decisions

• After rate hikes, the SPX averaged a -0.54% decline in the following week with only 40% positive returns, compared to +0.23% when rates were held steady
• When the AAII poll shows more bears than bulls ahead of Fed meetings, the SPX has historically outperformed, averaging +0.22% the following week versus -0.13% when bulls dominate
• The Fed meeting day itself shows average returns similar to typical days (0.10%), but with less frequent positive outcomes and larger moves when gains occur

Summary

Key Analysis: Schaeffers Research examined S&P 500 (SPX) performance following Federal Reserve meetings since 2015, ahead of next week's decision where betting odds indicate a 60%+ probability of a rate hike.

Historical Performance Data:

• On Fed meeting days, the SPX shows average returns similar to typical days, but with less frequent positive outcomes (though larger gains when positive)
• In the week following Fed meetings, the SPX has underperformed, barely breaking even with only 50% positive returns versus typical weekly gains of 0.25% with 61% positive outcomes
• Performance normalizes beyond one week post-meeting

Rate Action Impact:

• After rate hikes: SPX declined 0.54% average in the following week, with only 40% positive returns
• When rates held steady: SPX gained 0.23% average, with 54% positive returns
• On rate-hike meeting days, the SPX was positive only 35% of the time, but averaged impressive 1.8% gains when positive

Sentiment Factor:

• Current American Association of Individual Investors (AAII) poll shows bearish sentiment (more bears than bulls over past four weeks)
• Historically, bearish AAII readings have been a positive contrarian indicator for Fed meeting outcomes
• Under bearish sentiment with rate hikes: SPX lost 0.56% the following week but rebounded after two weeks
• Under bearish sentiment with steady rates: SPX gained 0.67% average with 58% positive returns

Market Implications:

Markets typically struggle post-Fed meetings, particularly after rate hikes. However, current bearish sentiment could accelerate recovery. If rates are unexpectedly held steady against market expectations, this could provide a significant short-term boost.