When Federal Reserve policymakers meet again in less than three weeks, don’t be surprised if the S&P 500 advances the day before the Fed announces its rate decision. That’s been the pattern before every Fed decision since 1994, when the central bank first began announcing its target range for the federal funds rate.
“U.S. and international equity markets have seen large and statistically significant excess returns in the 24 hours prior to scheduled FOMC,” according to a recent report from the Federal Reserve Bank of New York.
Up until March 2011, the advance in stocks began in the afternoon of the day before the Fed announcement and continued into the next morning. Then the Fed began to hold press conferences after every other policy meeting — hosted by its chairperson — and the excess stock market returns began the morning of the day before the Fed decision, but only for meetings that concluded with a press conference. There was no longer evidence of a stock market advance the day before a Fed decision for meetings that did not end with a press conference.