Minutes from the FOMC’s September meeting will be released later this afternoon. As you no doubt recall, it was at this meeting that the FOMC surprised many by keeping rates unchanged, cutting economic forecasts, and citing the global economic and financial market weakness as key reasons for staying on hold and cutting their outlook. Given the surprising move by the FOMC, investors will be going through these minutes closely to see just how close a call it was and for any additional understanding as to how much international developments will play in FOMC policy. To get a better idea as to what investors will be watching for, reading through these two previews from Bloomberg and the Wall Street Journal would be a good place to start.
So how does the market react to releases of the FOMC minutes? The chart below shows the S&P 500’s historical performance on FOMC ‘minutes days’ dating back to 2003. As shown in the right hand side of the chart, after several recent times where the S&P 500 mostly saw positive returns on days where minutes of an FOMC meeting were released, the S&P 500’s performance on the day of the last two releases has been poor. On the day of the last release (8/19), the S&P 500 saw a decline of 0.83% while the release prior to that on 7/8 saw a decline of more than twice that! That 1.67% decline from 7/8 was the S&P 500’s worst performance on a ‘minutes day’ since the financial crisis in 2008.
Although the S&P 500 has seen poor returns on the last two ‘minutes days’, we would note that in both instances the market was already weak heading into the release (see charts below), so the release of the minutes themselves was likely not the catalyst for the weakness. In fact, looking back a little bit longer, releases of FOMC meeting minutes have increasingly become a bit of a snoozer. This year alone, in the seven prior releases of minutes to an FOMC meeting, the S&P 500 has only seen a move of more than 25 bps (up or down) once. With Fed Chair Yellen holding quarterly press conferences and FOMC officials speaking on a frequent basis, views of various FOMC officials are generally well known, so that the minutes themselves contain less in the way of surprises.