Hickey and Walters (Bespoke) submit: With yesterday's Fed rate announcement, we looked back at prior Fed days during the current bull market. With the S&P 500 currently in overbought territory (greater than one standard deviation above its 50-day moving average) by 1.5%, we specifically looked at where the market was trading on the day of the Fed decision.
In the tables below, we have broken the Fed days into three categories -- S&P is overbought, oversold, or neutral. We then looked to see how the S&P performed on the Fed day and in the week and month following. While the degree to which the market was overbought has not had much of an impact on the direction of the markets on the actual Fed day, it has made a difference over the following week.
The average performance of the S&P in the week following a Fed day when the market is overbought is -0.65%. When the market is neutral, the one-week performance is 0.39%. And surprisingly, when the market is oversold, the average performance over the following week is -1.05%.
With the market currently in overbought territory, investors should be prepared for declines over the next 7 days.