The Federal Reserve looks set to raise interest rates today and with rumors of that emerging, the market has become more volatile in the early hours of trading on Wednesday, reports Market Watch.
A rate increase in September is very rare, having not happened since 2005, in part this is due to a regular occurrence in the market which makes September a difficult month. George Goncalves, the head of U.S. rates strategy at Nomura noted this trend to Market Watch.
Increasing the interest rate would be in line with what the Fed reported at the beginning of the year, with statements hinting of four rate increases this year. That will make another hike likely in December, but despite that, and the ability for those watching the market to see this coming, the market has gone through some panics today.
The Fed’s statement later today when it is expected to increase rates will be carefully watched by investors and market analysts for any further hints of what policy could be set in the coming quarter. Trade tensions have made the market volatile already and the administration will likely keep up a strong management of things in light of things coming down the line.
If you expected a market bounce on the underperforming markets into the Fed announcement… you got it. Unlikely to see it move further upwards:
– Global money supply growth lower
– Global GDP growth revised down
– Earnings peak pic.twitter.com/Qu2w7TOFsV
— Daniel Lacalle (@dlacalle_IA) September 26, 2018
Bespoke Investment Group analyzed previous announcements from the Fed and released that data on Tuesday, noting that the last 10 days when an announcement was made stocks fell 0.13 percent.
Looking out further than just the last 10 announcements the S&P 500 tends to do well with Fed announcements, rising an average of 0.28 percent compared in the last 24 years compared to an average of 0.03 percent on regular trading days. That statistic is inflated by the times when the Fed has cut rates, gaining an average of 0.44 percent, the typical gain for the opposite is 0.25 percent.
That trend has failed lately, with the last four times a rate increase has been announced the market as a whole has decreased after the announcements. That includes the S&P 500, normally a phenomenally stable group of stocks, which has dropped at most of 0.72 percent which happened on May 2. The S&P 500 dropping four consecutive Fed days has only happened twice since 1994, first on September 1996 and again in the same month in 2002, which sets an ominous tone for today’s announcement.
Throughout the increases so far this year, the S&P 500 has begun the day strongly, trending upward before falling later in the day and falling dramatically towards the end of trading. This won’t be short-lived as stocks tend to decline for a month following the rate decrease, with the S&P 500 going down 0.41 percent on average.