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Impact of Fed on Short-term Trading

Posted By Barry Ritholtz On May 3, 2005 @ 5:30 pm In Economy,Markets,Trading | Comments Disabled

Is there any pattern to trading around the FOMC meeting?

click for larger graph
Fedreact [1]

chart courtesy of Michael Panzner [2]

Michael Panzner, whose charts have been gracing these pages quite regularly, observes:

Since the Federal Reserve began raising interest rates in the tightening cycle that began on June 30, 2004, the stock market has exhibited a curious short-term bipolarity in reaction to the central bank’s actions.

Generally speaking, regardless of which way prices finish up on the day of the hike — usually higher, though last time around they fell by more than 1% — they have tended to swing in the opposite direction 24 hours later.

Some might say that these short-term swings are nothing more than noise, casting little light on what is going on in the wake of the central bank’s widely-telegraphed strategy of boosting rates back towards more neutral levels.

A cynic might argue, however, that rather than having their anxieties assuaged by Dr. Greenspan’s supposedly more investor-friendly and transparent approach, market players remain as confused as ever about where things are — and where they are headed.

Maybe it’s time to change the meds?

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URL to article: http://www.ritholtz.com/blog/2005/05/impact-of-fed-on-short-term-trading/

URLs in this post:

[1] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/fedreact.jpg

[2] Michael Panzner: http://www.amazon.com/exec/obidos/ASIN/032124785X/thebigpictu09-20

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