The FOMC meeting has been responsible for generating some very large macro market moves. For instance, three FOMC’s ago, the December 13th meeting and Jerome Powell’s subsequent commentary sent the S&P 500 spiraling lower by more than 7.8% (peak-to-trough) over just five trading days.
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However, as we all know, the S&P 500 does not obey the rules of gravity (sorry bears). For this index, what goes down must come up. As such, the S&P would soon recover — and with the help of the next FOMC (which occurred on February 1st, 2023) the S&P 500 would soar 3.9% peak-to-trough in the 24 hours that followed the Fed meeting!
And at the most recent FOMC, on March 22nd, after a brief drop the market racked up consistent gains for the following twelve days.
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Now, with the FOMC meeting occurring in just a few hours, the stock market sits at an interesting precipice. The S&P 500 — the most commonly traded index — has been bumping up against a stiff point of resistance for months.
That area of resistance, roughly at the $418 level, is directly below a wide gap in the market that has existed for a long time.
That gap’s exact unfilled area is $419.96 through $421.22, and it’s roughly 2.5% away from where we’re at now. Looking at the past three FOMC-driven moves, this is well within reason. It’s also commonly understood that gaps in the market fill 80-to-90% of the time (depending on what statistics you use).
The Bottom Line
Often, the FOMC meeting is just an excuse to drive the market in a particular direction that the technicals are already moving towards. We see this often, especially lately, when the Fed has done an excellent job at telegraphing what its next move will be.
With the market already largely expecting another (and likely final) 25 basis point rate hike, it’s likely that all the “bad news” from the upcoming FOMC has been priced in. If that’s true, it’s possible that this gap in the S&P 500 could become a suitable short-term price target for those traders brave enough to foray into the volatility that is: trading on a Fed day.