FOMC Statement and Trading The Federal Reserve | Podcast Episode #48

0:00
Hey everybody, this is Ryan Maller with Swing Trading the Stock Market, my podcast that I do an episode for every single Wednesday. And so today, it’s the FOMC statement Day, Fed day, whatever you want to call it, but the Fed’s going to try and jar these markets here for better or for worse. I don’t know. In fact, as I’m recording this, there’s only about 5 minutes to go, so I’m actually gonna have to take a break and recording this podcast, handle the markets once the FOMC statement comes out. And then come back to recording. So it’ll be a little bit interesting, but nonetheless, it should be still interesting.

0:32
FOMC, it stands for Federal Open Market Committee. It’s a group of governors and a chairman that meet every 6 weeks. They issue a FOMC statement. After the statement, it used to be where every other FOMC statement there was a presser. Now every FOMC statement has a presser, so the FOMC statement comes out at 2 p.m., 2:30, the presser where the media gets to grill, the Federal Reserve Chairman. This case, that’s Jerome Powell. He uh he was appointed by Donald Trump. Before that it was Janet Yellen appointed by President Obama. Before that it was Ben Bernanke. That was George W. Bush and before him, it was Alan Greenspan.

1:13
And then, of course, you can keep going further back where you have like Paul Volcker and all that, but you know, the basically, the, the Federal Reserve, it’s Kind of dominated by one person, what he wants pretty much all the governors are going to fall in line with, and the governors are from all the different banks. They’re on a rotational basis. If you’re not very familiar with the Federal Reserve, it was established by Congress about 100 years ago to serve as the US central bank, which is funny about that. This is something the founding. others would have like just gone ape about because they did not want like a national bank and here we do, we do have that.

1:45
We have a central bank. It was created by President Woodrow Wilson. If you remember, he also created the League of Nations. He was kind of a failure at that. I kind of think this whole Federal Reserve Act that he signed into law back on December 23, 1913. Has kind of been a dismal failure too, because they never seem to do it right. They always over tighten the interest rates or they, or they loosen them up too much. I, either way, they never already. Alan Greenspan, he always talked about, oh, I need to do a soft landing by raising the interest rates because the market’s getting too heated. What did he do? He created the, the, the dot-com bust.

2:17
I mean, the whole, the whole market went to crap then, you know, and then, of course, you have under Ben Bernanke, you have the 2008 subprime crisis. So really, I, I mean, these, these people really have no clue what they’re doing. I have little to no faith in these guys. And then Janet Yellen, of course, she, she kept the 0% interest rates that Ben Bernanke created to bring us out of the recession. She kept them way longer than she should have. And Jerome Powell, now he’s trying to raise the rates, but then you saw what happened in quarter 4, where the market just pulled back ridiculously, and he bowed the need to the market too and basically said, I’m done raising interest rates.

2:58
Now with the market trading at all-time highs, could we see him change that tone a little bit? Yeah, I think so. I actually do think that with us trading at all-time highs now, I don’t expect it here today, but I do think. At some point this year, if we continue to trade higher, he’s going to talk about raising interest rates again and he’ll send the market lower as soon as he does it. So, that’s the beauty of the Federal Reserve. They create crashes, they create bubbles, and There’s really not much in between, and everybody seems to act like they’re serving a good, good purpose, at least in Washington DC they do. But really, if it were up to me, I’d get rid of the Federal Reserve. I think it’s trash.

3:29
I have no confidence in them. I think, I think it’s one of the most useless entities of the United States government and not only that, they’re. Doing things all the time like quantitative easing. There’s even talks at one point about doing negative interest rates. Nobody knows if these things are supposed to work long term or if it has a good impact on the economy. For all we know, quantitative easing is going to be a force to be reckoned with because It it was basically welfare welfare for the financial system. So what, what’s the mandate of the Federal Reserve? Well, you would think it was the stock market by the way that they act, but it actually is just employment and inflation. They want to, you know, achieve full employment, which is around 4%, and they also want to keep inflation low.

4:08
Well, I think their scope has gone way beyond that because they are very much in tune with what the stock market’s doing, and Jerome Powell showed that when he backed off of making any more interest rate hikes when the stock market kept crashing back in quarter 4 of 2018. Now right now we are actually at 2.25 to 2.5% interest rate. Within the last few minutes, the FOMC actually. Came out with their new statement. They’re keeping the rates the same. The market didn’t seem to have any problems with it. It actually jumped up a little bit and it’s kind of held steady here now. That’s what brings me to my next part of this whole thing. is how does the day of the FOMC statement coming out? How does it affect the market?

4:46
So, the day of, the morning of, when the market opens, usually you’re going to start seeing some pretty light conditions. There’s, in terms of volume, there’s not going to be a lot of trading and there’s not going to be a lot of Big moves. I mean, I’ve seen it before where there is a big move, but usually it’s because there’s some news overnight that’s generated that big move. Or if there’s a lot of optimism about the Fed doing something that has been quite priced into the market yet, then you might see a big, big move ahead of the FOMC statement. But usually, The morning of leading up to that 2 p.m. Eastern press release, it’s, it’s pretty docile. It’s pretty quiet.

5:21
If there’s like a 7 or 8 point move on the S&P 500 early on, you’re probably going to see a lot of that be given back and maybe even go back into the red and then a quick dip by that takes it back to break even or a little bit, you know. And positive territory. So there’s not a lot of big movements. There’s not going to be a lot of conviction in the moves. The one sector that gets affected the most is the banks because they are the ones that are the most sensitive to interest rates. Companies that are dependent on capital loans or the companies that are providing those loans like banks where their profits are directly tied to the, to the interest rates, they are going to be most affected.

6:00
Immediately after the FOMC statement is released, what typically happens? Immediately afterwards, there’s going to be a knee jerk reaction, and today it wasn’t that bad. Actually, I was kind of wondering at first, I’m like, am I the only person that realizes the FOMC statement is out because I went to their website, you go to Federal Reserve.gov and it’s on the homepage when it comes out. But the market really wasn’t moving at first and then all of a sudden it did, you know, within about 30 seconds or so. Nonetheless, There’s usually a knee jerk reaction and usually it’s like instantaneously and usually that first reaction is the one. That tells you where the market ultimately wants to go.

6:34
However, there’s also a pullback because a lot of people will do option plays on them and then they try to make money both ways. So a lot of times you’ll get that initial reaction, and that’s usually the direction it wants to take. And then there’s a huge fade or a contrarian move of that initial move. So if the market goes way up initially or goes up 78 points, maybe if it goes to 20 points, then there’s usually like a pullback and then especially when it’s in high volatility, high, high emotional markets, there’s much more. Knee jerk reactions and then a counter move to that initial reaction. So not only is there a knee jerk reaction. And a countermove to that knee jerk reaction, but then there becomes a countermove to the countermove. And then that’s usually where the market starts to find its footing and starts to move in the ultimate direction that it’s going to take.

7:21
So move, countermove, countermove. Does that all make sense to you guys? You have that initial knee jerk reaction, which is usually telltale sign of where this market wants to go. Then you have the countermove that kind of gives up all those gains or some of them, and then you have the countermove to the countermove. And that’s ultimately where the market wants to go. That’s been my experience with it. Is it going to work out that way every time? No. If there’s a, if there’s a big announcement that was unexpected, or if they were only supposed to cut rates by 0.25 of a point, and instead they cut it by 0.5 or 3/4 of a point, you can expect a monster rally out of the market.

7:56
It’s just going to happen and there’s no, there’s not going to be any countermoves or counter moves to the counter moves. It’s just gonna be straight up. So you have to look at it in perspective too. Now, the seasonal importance, right? You take what the FOMC was doing back in October, November, and December of 2018. It was very, very important. Every word that they said, every time they were speaking in front of people, it was important. But now we’re at a period where they’re not quite as important and so their impact on the markets will become less and less until they start. Talking about raising interest rates again. And when they do that, that’s when it becomes a little bit more serious. That’s when their role in the markets are much more impactful.

8:29
Right now, it’s pretty docile. We kind of know where the Fed wants to take this market. They don’t want to raise interest rates anymore. They’re on standby. But as soon as talks start coming back up about, hey, we’re going to increase these rates again, you can expect that the market’s going to get very volatile. Or if they decide to start cutting rates again, you’re going to start seeing much more bullishness out of the market. And I say bullishness, and we’re actually trading at all-time highs, but I think what you know, you know what I mean in terms of, you’re going to see much bigger moves on a day to day basis. So with all that said, what’s interesting is oftentimes the next day, market gets back all the gains.

9:06
It sells off hard. Uh, if, if it rallied the day of the FOMC statement, I’ve seen it happen plenty of times. I don’t know if that’ll happen every time, but oftentimes it does happen. So you have to be on guard for that too. So it’s not a bad thing to tighten those stops after a good rally following the FOMC statement because the next day it may do some profit taking.

9:23
That’s going to be it for today. If you guys have any questions, feel free to email me, ryan@shareplanner.com or You can just go to the website, sign up for the Trading Block. Man, I’m telling you, we’re making some really good trades right now. We’re, we’re in YNDX. I added that today. I closed out Adobe for a 5% yesterday. I’m up 4% today in Netflix. Yandex is YNDX. I call it Yandex. I don’t know why, but I guess I make words out of stock symbols, but Any case, I’m up about 2.5% in that today.

9:57
So some really good stuff going on here. You want to be involved, you want to be taking advantage of this great market. And if it turns to crap, this whole market, if it goes down, I expect profit off of that too. I’m not, I’m not gonna sit idly by and let just the market sell off without me having a, uh, opportunity to profit from it. So keep that in mind as well. Check it out, it’s the swing trading Trading Block.

10:12
This podcast is swing trading the stock market. Thank you and God bless.