A Fed Day Like Most Others

Mar 23, 2023

Yesterday’s Fed decision and comments from Fed Chair Powell gave markets plenty to chew on.  As we discussed in last night’s Closer and today’s Morning Lineup, there have been a number of conflicting statements from officials and confusing reactions in various assets over the past 24 hours.  In spite of all that uncertainty, the S&P 500’s path yesterday pretty much followed the usual script.  In the charts below we show the S&P’s average intraday pattern across all Fed days since Powell has been chair (first chart) and the intraday chart of the S&P yesterday (second chart).  As shown, the market’s pattern yesterday, especially after the 2 PM ET rate decision and the 2:30 PM press conference, closely resembled the average path that the market has followed across all Powell Fed Days since 2018.

The S&P saw a modest bounce after the 2 PM Fed decision and then a further rally right after Powell’s presser began at 2:30 PM.  That initial post-presser spike proved to be a pump-fake, as markets ultimately sold off hard with a near 2% decline from 2:30 PM to the 4 PM close.

So what typically happens in the week after Fed days?  Since 1994 when the Fed began announcing policy decisions on the same day as its meeting, the S&P has averaged a decline of 10 basis points over the next week.  During the current tightening cycle that began about a year ago, market performance in the week after Fed days has been even worse with the S&P averaging a decline of 0.99%.  However, when the S&P has been down over 1% on Fed days (like yesterday), performance over the next week has been positive with an average gain of 0.64%.  As always, past performance is no guarantee of future results.

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FANG+ Flying

Mar 22, 2023

As we noted in today’s Morning Lineup, sector performance has heavily favored areas like Tech, Consumer Discretionary, and Communication Services in recent weeks. Playing into that sector level performance has been the strength of the mega-caps.  The NYSE FANG+ index tracks ten of the largest and most highly traded Tech and Tech-adjacent names.  In the past several days, that cohort of stocks is breaking out to the highest level since last April whereas the S&P 500 still needs to rally 4% to reach its February high.

Although FANG+ stocks have been strong recently, that follows more than a full year of underperformance. As shown below, relative to the S&P 500, mega-cap Tech consistently underperformed from February 2021 through this past fall.  In the past few days, the massive outperformance has resulted in a breakout of the downtrend for the ratio of FANG+ to the S&P 500.

More impressive is how rapid of a move it has been for that ratio to break out.  Below, we show the 2-month percent change in the ratio above.  As of the high at yesterday’s close, the ratio had risen 22.5% over the prior two months. That comes up just short of the record (22.6%) leading up to the pre-COVID high in February 2020. In other words, mega-cap Tech has experienced near-record outperformance relative to the broader market. However, we would note that this is in the wake of last year when the group had seen some of its worst two-month underperformance on record with the worst readings being in March, May, and November.

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