As markets brace for the Federal Reserve's final policy meeting of the year, scheduled at 2:00 p.m. Wednesday, Goldman Sachs highlighted 20 exchange-traded funds (ETFs) that have historically shown outsized moves around Fed decision days.
While a 25-basis-point rate cut to a target range of 4.25%-4.50% is widely anticipated, the market's focus is on the Fed's forward guidance, particularly the Summary of Economic Projections (SEP) and the updated "dot plot."
Following December's expected cut, Goldman Sachs projects a more measured pace of easing next year, forecasting rate cuts in March, June, and September, with the terminal rate seen at 3.50%-3.75%.
Read Also: All Eyes On December Fed Meeting As Traders Await Interest Rate Projections
Market Dynamics Around Fed Days
U.S. equity markets have displayed strong short-term gains during Fed meeting weeks in 2024.
Investors employing a simple strategy of buying the S&P 500 index at market close before a Federal Open Market Committee (FOMC) announcement and selling at close the following day have captured median returns of 1.1% across the past seven meetings.
Yet those extending the trade horizon to 15 sessions post-Fed meeting have enjoyed significantly larger average gains of 3.29%, more than double the short-term returns. Notably, every Fed meeting this year has resulted in positive 15-day returns.
"We observe that U.S. banking ETFs, such as SPDR S&P Bank ETF (NYSE:KBE) and SPDR S&P Regional Banking ETF (NYSE:KRE), have seen unusually large moves on FOMC days since 2022" Goldman analysts wrote in a recent note.
For bond-focused investors, the report highlights consistent post-meeting gains in high-yield and investment-grade ETFs like iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG) and iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD).
Meanwhile, energy-focused ETFs, such as the United States Oil Fund (NYSE:USO), have seen negative reactions.
ETFs Showing Heightened Fed-Day Moves
Here's Goldman Sachs' list of 20 ETFs with the largest absolute moves – which include both positive and negative swing – on FOMC days:
ETF Name | Focus | Average Absolute Move on FOMC since 2022 | Average Absolute Move (Last 3 FOMC events) |
---|---|---|---|
SPDR S&P Regional Banking ETF | Regional Banking | 2.5% | 1.5% |
VanEck Semiconductor ETF (NASDAQ:SMH) | Semiconductor | 2.4% | 3.7% |
iShares Semiconductor ETF (NASDAQ:SOXX) | Semiconductor | 2.4% | 3.3% |
SPDR S&P Bank ETF (NYSE:KBE) | US Large Banks | 2.2% | 1.3% |
SPDR S&P Biotech ETF (NYSE:XBI) | Biotech | 2.0% | 0.3% |
United States Oil Fund | Oil | 1.9% | 2.0% |
Technology Select Sector SPDR Fund (NYSE:XLK) | Technology | 1.9% | 2.3% |
iShares Silver Trust (NYSE:SLV) | Silver | 1.7% | 2.4% |
Invesco QQQ Trust (NASDAQ:QQQ) | Nasdaq 100 | 1.7% | 1.7% |
Consumer Discretionary Select Sector SPDR Fund (NYSE:XLY) | Discretionary | 1.6% | 1.0% |
iShares Russell 2000 ETF (NYSE:IWM) | Russell 2000 | 1.5% | 0.3% |
SPDR S&P 500 ETF Trust (NYSE:SPY) | S&P 500 | 1.2% | 0.9% |
Vanguard S&P 500 ETF (NYSE:VOO) | S&P 500 | 1.2% | 0.9% |
Financial Select Sector SPDR Fund (NYSE:XLF) | Financial | 1.1% | 0.7% |
SPDR Gold Shares (NYSE:GLD) | Gold | 0.9% | 1.4% |
iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ:EMB) | EM Bond | 0.8% | 0.6% |
iShares iBoxx $ High Yield Corporate Bond ETF | HY Corp Bond | 0.6% | 0.3% |
iShares iBoxx $ Investment Grade Corporate Bond ETF | IG Corp Bond | 0.6% | 0.7% |
iShares 7-10 Year Treasury Bond ETF (NASDAQ:IEF) | 7-10 Year Treasury | 0.6% | 0.7% |
iShares TIPS Bond ETF (NYSE:TIP) | TIPS Bond | 0.5% | 0.4% |
Average | 1.5% | 1.3% |
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