FOMC and the S&P

[AdamA]

I thought this was an interesting article:

http://www.fool.com/investing/general/2 ... ANbyWi0LzI

It basically says that if you remove the 24 hours prior to FOMC announcements since 1994, the S&P has been flat (i.e., instead of having risen from 450 to 1300, it would still be 450, if you remove those 136 days).

Does the Fed really influence the stock market this much?

[Gosso]

That is insane!  But it does make some sense.  Volatility will be much higher around the interest rate decisions, since they play such a key role in the economy.  Plus changes in interest rates will impact the forex markers, which are supposedly much larger and more liquid than the stock and bond markets -- see this article "The Biggest Financial Market You've Never Heard Of":

"That other world is the Foreign Exchange Market (forex), and it actually makes the stock markets look kind of small. It spans the globe and boasts a trading volume of around $4 trillion daily. That dwarfs the approximately $50 billion in volume (in 2009) transacted each day on the New York Stock Exchange (NYSE), the biggest equities exchange in the United States."

Also, the forex market operates 24 hours a day and is for the most part unregulated.  Those guys don't mess around!

[AdamA]

For the UK, since 1997, near enough the exact opposite holds i.e. swap the labels in the chart that that article posted



As Gosso said, interest rates are the stock markets gravity - potential/expected/actual changes will induce volatility around interest rate setting time points. So you'll likely see step up's OR step down's around those times. Perhaps according to how much the actual adjustment exceeded or fell short of common expectations.

Markets are like that. More often they're relatively flat for most of the time, interspaced with sizeable and quick step up's or step down's to new plateau's. They also have a tendency to take the stairs up and the lift (elevator) down.  

Re: Forex. Its mostly unregulated as it moves from Tokyo through London to New York. If any one of those attempted to regulate more harshly it would just move to another choice of financial centre. Singapore, Brussels, Toronto would only be too happy to provide a less regulated alternative should Tokyo, London or New York decide to turn dirty.

Why does the UK look the opposite of the US?

[Gosso]

10 minutes until Bernanke speaks.  It seems the market isn't expecting very much, but he could surprise.

Added:  Looks like the PP ate it up.  Golds reaction was interesting, a spike down then huge reversal to the upside.  Thanks Ben! 

[Tortoise]

Why does the UK look the opposite of the US?

Because when the day prior and day of the monetary policy committee sitting are set to a change factor of 1.0 (no gain or loss), the product (gain factor) of all days since June 1997 was just shy of 2.0 (100% gain) compared to 1.22 (22% gain) when those dates were left in. Plotting the two series had similar progressions to that shown in the articles chart - but with the 'without' line on top/above the Index line.

The conclusion I come to given the two (US and UK) is that (as might reasonably be expected), the markets are perhaps more volatile on those days, and the larger moves can compound to being up more or down more overall/in total.

Great point, Clive, and I think it's consistent with one of the general observations Benoit Mandelbrot makes in his book The (Mis)Behavior of Markets: A Fractal View of Financial Turbulence. Mandelbrot shows that stock prices are not distributed according to bell curves but are instead fat-tailed. And any finite-sized sample of a fat-tailed distribution (such as the one linked to in the OP) is going to be dominated by the sheer magnitude of the fat-tail events.

It is all too easy to be misled by the average direction of a handful of fat-tail events and conclude that the long-term trend is in that direction, when in fact the very idea of a long-term trend in a fat-tailed distribution--especially one with time-varying and fractal properties--may have little meaning.

[Pointedstick]

Yum.

[Gebo]

Where'd you get the "green circle of fun" above?

[Pointedstick]

Where'd you get the "green circle of fun" above?

It's a built-in visualization in my TDAmeritrade account.