This week’s Fed meeting will provide gutsy contrarians with yet another opportunity to exploit investors’ tendency to jump first and think later. I’m referring to the meeting of the Federal Reserve’s interest-rate setting committee on Tuesday and Wednesday of this week. The press release announcing the Fed’s decision will be released at 2 p.m. ET on Wednesday.
This strategy makes sense for several reasons. First, the Fed hates surprises, going to great lengths to telegraph to the markets in advance what its actions are likely to be. Second, whatever the Fed decides to do with interest rates will have relatively little impact on U.S. corporate profits in coming months and years.
This isn’t the first column I have devoted to this contrarian strategy, and it’s often worked. A case in point was what happened in the wake of the last Fed interest-rate-setting meeting, on April 30 and May 1. The S&P 500 SPX, +1.14% , which had gone up about 0.1% the day before the press release announcing the Fed’s decision, initially reacted favorably and within 30 minutes had risen another tenth of a percent.
As you can see, “borrowing costs” don’t even make the top-10 list. Bear in mind, furthermore, that for much of the quarter in question, prospects were that the Fed might raise rates later this year and in 2020, rather than lower them as the markets now expect. Even so, the costs of borrowing were not a major current corporate concern.
MktwHulbert Thank you Mark.
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