The new Fed chair spooked the market. The data says buy the dip.
212 FOMC meetings since 2000. Here's what actually happens after a Fed selloff.
New Fed chair, first time in front of the people, and the market didn’t like him. The narrative online was immediate: they hate this guy, rates are going up, short stocks. I made a couple jokes myself. But that’s not what the numbers say.
Across 212 scheduled Fed days since 2000, about 94 were selloffs close to close. So roughly half go up, half go down. There’s no edge in the meeting itself. The edge is in what comes next.
Buy the close on a Fed selloff day and here’s the probability you’re higher later: day one is a coin flip, 50/50, no edge. But five days out it’s 60%. One month, 72%. Three months, 73%. The median path three months later is a pretty decent equity curve.
Some of those paths are ugly (one is COVID, where a Fed day happened to land near the crash). But most of the lines sit above zero and slope higher. When the market sells off on the Fed, it usually goes higher from there.
Could it be different this time? Sure. Right 60% of the time means wrong 40%. Nobody knows the next move. But anyone shorting because the Fed spooked the tape hasn’t looked at the math.
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— Michael Nauss, CMT, CAIA, CDMS