The Bernanke Effect On Widely Held Stocks

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 |  Includes: AAPL, AMZN, BA, BAC, CSCO, DELL, DIA, EBAY, GE, GOOG, HD, HPQ, IBM, INTC, JNJ, JPM, KO, MDLZ, MRK, MSFT, NFLX, PFE, PG, QQQ, WMT, XOM, YHOO
by: Bachar Samawi

Following Bernanke's speech to bankers and economists in Jackson Hole, Wyoming on Friday August 26, 2011, markets traded higher with the Dow Jones Industrial average rising 1.21% to 11,284.54, while the Nasdaq 100 rose by 2.49% to 2479.85, and the S&P 500 rose 1.51% to 1176.8. Will the market sustain such a rally and how do widely held stocks perform relative to each other on similar Fed driven events?

To answer such question, we examined market reaction following the past 10 FOMC meetings that took place between August 10, 2010 and August 9, 2011. We examined the effect on the DJIA, S&P500 index, Nasdaq 100 index, as well as the effect on 25 widely held stocks.

FOMC Meeting Dates

A

August 9, 2011

B

June 21-22, 2011

C

April 26-27, 2011

D

March 15, 2011

E

January 25-26, 2011

F

December 14, 2010

G

November 2-3, 2010

H

October 15, 2010

I

September 21, 2010

J

August 10, 2010

Click to enlarge

On the day of the FOMC meeting announcement, the indices rose on 7 out of 10 occasions. When examining the indices two weeks following the day prior to such announcement, they rose on 8 out of 10 occasions. Hence, in general, the markets had sustained their gains within the first 2 weeks. During such two weeks, the DJIA rose an average of 0.97%, while the S&P 500 index also rose 0.97% and the Nasdaq 100 rose 1.41%.

Such gains were dampened substantially by the substantial market drops during August 2010, whereby during the two weeks following August 9, 2010, the indices fell 6.15%, 6.73% and 7.89% respectively. When examining the average market move on the 8 up-days, the indices rose an average 2.11%, 2.13% and 2.9% respectively. Although past performance is no indication of future performance, such results indicate that there is a high likelihood that the market will sustain its Friday gains, unless an unexpected event takes place.

It is also important to analyze such results for individual stocks in specific sectors. We chose 25 widely held stocks in technology, banking, food & beverage, retail, industry, oil, and pharmaceuticals. There is no question that during the two week periods examined, there were many other events also influencing stock prices. Nevertheless, we only examined the changes in prices to get a “general feel” for those sectors:

Company

Average 2-week price change during last 10 FOMC meetings

Number of periods where stock price increased (“up-periods”)

Number of periods where stock price decreased (“down-periods”)

Up-periods average stock price increase

Down-periods average stock price decrease

CSCO

-0.66%

6

4

4.44%

-8.30%

IBM

1.23%

7

3

2.83%

-2.49%

INTC

0.34%

6

4

3.64%

-4.60%

MSFT

-0.16%

4

6

4.27%

-3.12%

HPQ

-2.22%

5

5

2.55%

-6.99%

AMZN

4.43%

7

3

7.19%

-2.01%

NFLX

7.59%

6

4

13.99%

-2.00%

AAPL

1.43%

5

5

5.33%

-2.47%

GOOG

1.47%

7

3

5.07%

-6.92%

YHOO

2.50%

7

3

5.26%

-3.93%

DELL

0.96%

7

3

4.14%

-6.47%

EBAY

4.65%

8

2

6.64%

-3.31%

BAC

-1.66%

4

6

3.48%

-5.08%

JPM

-0.50%

6

4

1.91%

-4.12%

GE

-0.40%

5

5

3.02%

-3.82%

PFE

1.10%

6

4

3.80%

-2.94%

MRK

0.36%

5

5

3.24%

-2.52%

JNJ

0.68%

7

3

1.90%

-2.18%

XOM

1.10%

8

2

2.81%

-5.77%

BA

-0.14%

6

4

3.80%

-6.04%

WMT

1.38%

6

4

2.87%

-0.86%

HD

2.55%

8

2

3.70%

-2.04%

KO

1.70%

7

3

2.90%

-1.11%

KFT

0.29%

5

5

2.48%

-1.90%

PG

0.73%

4

6

3.51%

-1.12%

Click to enlarge

For the technology/internet stocks examined, although performance varied from one company to another, stock prices for such sector (CSCO, IBM, INTC, MSFT, HPQ, AMZN, NFLX, AAPL, GOOG, YHOO, DELL, EBAY) increased an average of about 1.53% during the two weeks following the day prior to the FOMC meeting.

Meanwhile, retail stocks (WMT, HD) increased an average of about 1.97%, while pharmaceuticals (PFE, MRK, JNJ) increased an average of about 0.71%. Financial stocks (JPM, BAC) dropped an average of about 1.08%. Food & beverage and consumer product stocks (KO, KFT, PG) increased an average of 0.91%. Manufacturing stocks (BA, GE) dropped an average of about 0.27%, while oil giant Exxon Mobil ((NYSE:XOM)) rose 1.1%.

It is clear that in general Bernanke has a positive effect on the stock market. Although past performance is no indication of future performance, there is a good likelihood that recent gains by the market will be maintained during the next two weeks. It is also possible that if history repeats itself, retail stocks stand to possibly outperform other stocks, while a selective technology long strategy may also do well.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.