Stocks on Fed days tend to get knocked around. Why today may be no different.

Federal Reserve interest rate decision days historically trigger significant market volatility, with the S&P 500 averaging a 1.7% intraday swing since 2020. While a rate cut today is widely expected, Wells Fargo's Sameer Samana warns that the Fed's forward guidance on rates, particularly with inflation at 3%, could still induce market choppiness. Given that risk assets are perceived as 'overdone' and major indices recently achieved record highs, the meeting may provide an impetus for investors to sell into recent strength.

Analysis

Federal Reserve interest rate decision days historically induce significant market volatility, with the S&P 500 (SPX) averaging a 1.7% intraday swing over the past five years and a median of 1.3%. While a rate cut today is nearly 100% priced in, according to Wells Fargo's Sameer Samana, the market's focus will shift to the Fed's forward guidance. This guidance is particularly critical given current inflation at 3%, which remains above the central bank's target.

Samana warns that messaging around the future path of rates could introduce considerable choppiness, potentially "throw[ing] markets for a little bit of a loop." Historically, the S&P 500 has advanced post-rate decision release but became volatile during Chair Powell's subsequent news conference. This suggests that the market's reaction is highly sensitive to nuanced communication regarding future monetary policy.

The current market context features the S&P 500, Dow Jones Industrial Average (DJIA), and Nasdaq Composite (COMP) all nearing a fourth consecutive day of record closes, a streak not seen since November 2021. Samana characterizes risk assets as "overdone," implying elevated valuations. This confluence of factors suggests the Fed meeting could serve as a catalyst for investors to engage in profit-taking, selling into the recent market strength.

Key Decisions for Investors

• Monitor the Fed's forward guidance closely, particularly any indications regarding the future pace of rate adjustments, as this is expected to be the primary driver of post-announcement market volatility.
• Be prepared for potential increased intraday market choppiness, especially during Chair Powell's press conference, and consider adjusting short-term trading strategies accordingly.
• Evaluate current portfolio exposure to risk assets, given the "overdone" market sentiment and recent record highs, as the Fed meeting may trigger profit-taking.