FOMC Market Action

Last night I warned to beware or market action following an FOMC policy statement. Historically there's been a knee-jerk reaction that changes either the same day or within several days, it hasn't been as pronounced recently, but it's something to be aware of. Below is a depiction of policy statements and meetings recently.

Note the day after or within a few days there tends to be a different reaction, it may appear subtle here, but the January example saw a nearly 2% drop within two days, it wouldn't have felt subtle then. The 3/15 statement saw the market close rather weak, the next day it was down an additional 2%, then the day after was up 1.34% and reversed a downtrend. The initial reaction wouldn't have given you the impression that the FOMC release was good for the market. So things can change quickly around FOMC statements, this one due in about an hour and 20 minutes. I expect the market to be very volatile today, especially between the statement and Bernanke's 2:15 presser.

One other interesting note, there's no doubt that the Fed had an arrangement with the Primary Dealers, giving them nearly risk free money in the billions to act as a middle man. In return the PD's often used that money to lift the market, the phenomena is well documented and even the submitted accepted ratio was nailed down to predict whether the PD's would be putting the money in the market, depending on whether the S:A ratio was above or below the median. It seems there's a reason Bernanke made this arrangement. Taking the dollar's year to date loss and the market's year to date return, in real terms of a dollar's buying power, the market has gained nothing year to date, when compared to the dollar's loss of buying power.

Wouldn't it be interesting if earnings ytd we're calculated for the real value of the dollar ytd?