Bloomberg News

Don’t Fight Fed as Decision Days Fuel Rally, Bespoke Says

July 31, 2012

Investors should buy stocks before the Federal Reserve’s announcement tomorrow, if history is of any guide, according to Bespoke Investment Group LLC.

The Standard & Poor’s 500 Index (SPX) has advanced in 20 out of the past 29 decision days since the Fed pledged to keep interest rates near zero in December 2008, a study from Harrison, New York-based Bespoke shows. While Fed days made up 3 percent of the trading days during the period, they accounted for about 38 percent of the equity gauge’s gain, the data show.

“‘Don’t fight the Fed’ is one of the most well-known market axioms around, and these performance numbers couldn’t do a better job of highlighting why,” Justin Walters, Bespoke’s co-founder, wrote in a note today.

The S&P 500 has rallied 10 percent this year amid speculation that worse-than-expected economic data will prompt the Fed to take more actions to spur growth. Chairman Ben S. Bernanke and other Federal Open Market Committee members began a two-day meeting today.

Bernanke will probably forgo announcing a third round of large-scale asset purchases, and is more likely to wait until September to unveil plans to buy $600 billion in housing and government debt, according to median estimates of economists in a Bloomberg News survey.

The Fed has carried out two rounds of so-called quantitative easing since Lehman Brothers Holdings Inc. collapsed in 2008, buying $2.3 trillion in bonds to boost the economy. The S&P 500 jumped 59 percent during the 913 trading days from December 2008 through yesterday, with return on the Fed days totaling 22 percent, data from Bespoke and Bloomberg show. The average gain on the past 29 Fed days was 0.7 percent.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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