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Buying Stocks Right Before Fed Meetings Yields 'Impressive' Gains

Buying Stocks Right Before Fed Meetings Yields 'Impressive' Gains

Fed Chair Janet Yellen (AP File)

By    |   Thursday, 22 September 2016 12:29 PM

What if you could get an 80 percent return by investing your money only about 10 days out of the year?

That’s the possible gain from buying stocks at the market close before the Federal Reserve meets to set monetary policy and holding until the close on the day of the Fed decision, according to Bespoke Investment Group. The firm analyzed the S&P 500 stock index’s performance over a 20-year period.

“Bespoke estimates that a $100 investment during just Fed days would have grown nearly 80 percent to $178,” MarketWatch reports. “That’s an impressive return given that it only covers 3 percent of trading days since the first Fed day of 1995.”

Keeping money in the market during that period would have produced a higher return of 160 percent, but you’d also have to stomach bear-market swoons like when the dot-com and housing bubbles burst.

The Fed yesterday maintained its target interest rate at about 0.5 percent, where it’s been for the past 10 months. Investors see a 52 percent likelihood that the central bank raises rates by 0.25 percentage point at the upcoming Dec. 14 meeting.

Whether investors can get that return over the next 20 years remains to be seen, especially if Fed policies are less effective at stimulating the economy. The central bank already cut interest rates to record lows and undertook trillion-dollar debt-buying schemes in an effort to pull the U.S. economy out of its last recession.

Ted Rivelle, chief investment officer at asset-manager TCW Group Inc., says central banks have created the third asset bubble in the past 16 years with monetary policies that mask declines in productivity growth.

“Growth results when the productive sectors of the economy make themselves more productive by delivering goods more efficiently or by innovating products valued by the marketplace,” Rivelle says in a Sept. 19 report. “The central banker’s model of growth not only ignores these creative/destructive forces – it is antithetical to them.”

Central bank policy of encouraging consumers, business and governments to borrow more and more money loses effectiveness when incomes aren’t growing enough to service the debt.

“The credit-fueled expansion inevitably comes to a bad end,” Rivelle says. “We’ve lived this story before: indeed, while every cycle is distinctly different, they all end up suffering from the same central banker induced maladies.”

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What if you could get an 80 percent return by investing your money only about 10 days out of the year?
stocks, market, Federal Reserve, investing
Thursday, 22 September 2016 12:29 PM
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