U.S. stocks typically climb on Fed days, but the trend is weaker under Powell

How might U.S. stocks react if the Federal Reserve leaves interest rates on hold when its two-day June policy meeting concludes on Wednesday?

The answer could be murkier than investors might expect, according to a series of charts from Bespoke Investment Group. Perhaps counterintuitively, the Bespoke team showed that the S&P 500 index SPX tended to rally on Fed days in 2022, a notoriously difficult year for the market that saw the large-cap index fall 19.4%, its worst calendar-year performance since 2008, according to FactSet data. The opposite has been true in 2023, even as the index has risen nearly 14% year-to-date, according to FactSet data.

To be sure, stocks have tended to respond better to rate cuts than rate increases — at least on the day that the decisions were announced. The S&P 500 has recorded an average advance of 21.69 points on days where borrowing costs were raised. By comparison, rate cuts typically coincided with a gain of 36.55 points.

The average daily market gain for Fed decision days in the Powell era has been the smallest in recent memory at 0.1% . That compares with a near 0.6% average gain during the tenure of Ben Bernanke.

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