Another Fed Day Decline

With the FOMC deciding to hike rates 25 bps yesterday, a new tightening cycle has technically begun, and while the policy decision is new relative to the past few years, the market reaction is more of the same.  With the S&P 500 dropping 0.45% on the session yesterday, the S&P has now fallen in reaction to each of Fed Chair Warsh's first three meetings in his current role. Additionally, it marked the sixth consecutive decline on a Fed day, a historic streak.
This is now the second longest streak of declines on Fed days on record going back to 1994 when the FOMC began announcing rate decisions on the same day as the meeting. The current record is a seven-meeting streak that lasted from the March to November 2018 meetings.  If those dates sound familiar, that was the first seven meetings with Fed Chair Powell at the helm. In other words, both of the two most recent Fed chairs kicked off their tenures with equity markets selling off on the day of FOMC meetings.

While it may sound like Warsh is picking right up where Powell left off for new Fed chairs, that doesn't exactly do justice as to how bad of a reaction the market has had over the past three meetings. In the chart below, we show an intraday composite of the S&P 500 for the first three meetings of a new chair's tenure. Warsh (red line) now stands in a class of his own with an average S&P drop of more than 1%.

In order to further emphasize that late day weakness early on in Warsh's term, below we show the average performance from right before the release of the FOMC decision through the close across each of the past few Fed Chair's first three meetings.  Again, Powell wasn't warmly received as the S&P 500 averaged a 0.54% decline from 1:59 PM through the close. While that isn't great, performance so far during Warsh Fed Days has been nearly twice as bad.

Even if we hold aside that it is the first three meetings with a new chair, performance nonetheless leaves much to be desired. Below we show the average daily change of the S&P 500 for all rolling 3-meeting periods since 1994.  Each of the past three meetings have had this reading sit at worse than a 1% decline. While there is precedent for this average to come in below 1%, it has never stayed this low for as many meetings in a row.