Stock Market Gains On FOMC Days

In June 2011, the Wisconsin Republican party claimed that Scott Walker’s policies were responsible for over 50% of U.S. job growth. While 9,500 out of the 18,000 jobs added in the United States did come from Wisconsin, claiming that they were responsible for half of the country’s growth is being very liberal with the truth. Job losses in other states cancelled out Wisconsin’s gains, which is why a true statement like this can smell awfully funky. Technically, with 13,000 jobs added in Minnesota, Democratic Governor Mark Dayton could easily have said that his policies were responsible for 70% of the nation’s job growth. This concept was explained in Jordan’s Ellenberg’s How Not To Be Wrong and I was reminded of this last week when I saw a similar claim from the WSJ.

From the beginning of 2008 to the present, more than half of the increase in the value of the S&P 500 occurred on the day of Federal Open Market Committee decisions.

Had Wisconsin ceased to add any jobs in June 2011, U.S. job growth would have been cut in half. Similarly, if you did not invest on FOMC days, your returns would have been cut in half. There is no denying that stocks have done really well on FOMC days, with an average and median return of 0.95% and 0.16%, compared to an average and median return of just 0.01% and 0.06% for all days over this period. But what definitely smells a little gnarly is the notion that the fed is manipulating the bull market and choosing 2008- the second worst year ever for stocks- as your start date. As my colleague Ben Carlson shows, if you start this exercise in 2009, then FOMC days are “responsible” for just 12% of the markets’ total move.


Over the last 8.5 years stocks have done really well on FOMC days. Does this mean that the Fed is manipulating the stock market, or that this will continue, or that you should trade as if it will? It doesn’t mean any of these things, it’s just a single data point that’s in desperate need of some context.


How To Not Be Wrong: The Power of Mathematical Thinking