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 KBE and SPDR S&P Regional Banking ETF 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 HYG and iShares iBoxx $ Investment Grade Corporate Bond ETF LQD.
Meanwhile, energy-focused ETFs, such as the United States Oil Fund 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 SMH | Semiconductor | 2.4% | 3.7% |
| iShares Semiconductor ETF SOXX | Semiconductor | 2.4% | 3.3% |
| SPDR S&P Bank ETF KBE | US Large Banks | 2.2% | 1.3% |
| SPDR S&P Biotech ETF XBI | Biotech | 2.0% | 0.3% |
| United States Oil Fund | Oil | 1.9% | 2.0% |
| Technology Select Sector SPDR Fund XLK | Technology | 1.9% | 2.3% |
| iShares Silver Trust SLV | Silver | 1.7% | 2.4% |
| Invesco QQQ Trust QQQ | Nasdaq 100 | 1.7% | 1.7% |
| Consumer Discretionary Select Sector SPDR Fund XLY | Discretionary | 1.6% | 1.0% |
| iShares Russell 2000 ETF IWM | Russell 2000 | 1.5% | 0.3% |
| SPDR S&P 500 ETF Trust SPY | S&P 500 | 1.2% | 0.9% |
| Vanguard S&P 500 ETF VOO | S&P 500 | 1.2% | 0.9% |
| Financial Select Sector SPDR Fund XLF | Financial | 1.1% | 0.7% |
| SPDR Gold Shares GLD | Gold | 0.9% | 1.4% |
| iShares J.P. Morgan USD Emerging Markets Bond ETF 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 IEF | 7-10 Year Treasury | 0.6% | 0.7% |
| iShares TIPS Bond ETF TIP | TIPS Bond | 0.5% | 0.4% |
| Average | 1.5% | 1.3% |
Check Out:
Image: Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
