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What News Moves the Market?

Nov 15, 2021

By: Frank Kaberna

Rumors started to swirl concerning the nomination for the next Federal Reserve Chairperson a little over a week ago.* Would President Biden nominate the current Fed Chair Jerome Powell for another term, or would he go to the more dovish Democrat Lael Brainard?


S10Y \ 10YR Treasury Yield Index

1115_smalls1.png

Source: dxFeed Index Services (https://indexit.dxfeed.com)

Interest rate markets, which the Fed has significant influence over, were likely expecting another term for Powell given that Treasury yields fell several basis points following even the mention of Brainard in the interview process. Though further developments in this story will be important for the future of the US economy at large, most traders were seeking the answer to just one question as the news broke:

Are Yields a Buy or Sell?


A Logical Approach to Trading the News

It might seem simple, but asking how much a news item actually matters can be a solid way to start your research. Allegedly, yields fell because President Biden interviewed a dovish Fed Governor, a supporter of monetary expansion and thus low interest rates, for the next Fed Chair appointment.

Though the Fed Chair may hold considerable sway, most actions from the Federal Reserve or Federal Open Market Committee require a vote from a mix of the Board of Governors, of which there are seven, and the regional Federal Reserve Bank Presidents, of which there are twelve.

Given this information, which is readily available at federalreserve.gov and wikipedia.org, did it make sense for Treasury yields to fall near pandemic lows on the rumor of a new Fed Chair?


A Statistical Approach to Trading the News

Vast amounts of market data now at your fingertips via trading platforms can give you the ability to commit statistical research as well. It can be as easy as asking how markets were affected in the past by similar events.

Since 2000, three new Fed Chairpersons have been appointed (Bernanke, Yellen, Powell). Cross referencing the dates of their terms’ start** with price action in yields leading up to and following said dates conclude no major trends higher or lower no matter if they were doves or hawks, supporters of monetary tightening and thus high interest rates.


TNX \ 10YR Treasury Yield Index

1115_sm2.png

Source: Yahoo! Finance (https://finance.yahoo.com/)

After checking your platform, did markets shift enough during past Fed appointments to warrant the activity seen amid news of the potential for a new Chairperson?

Sure, this opportunity to trade the news has come and gone, but there are hundreds of news items posted daily covering the multitude of asset classes at your disposal. Open your search engine and trade platform, and go get ‘em!

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*”Biden meets with Fed leaders Powell and Brainard as nomination decision nears” from cnbc.com 11/5/21

**Info available at federalreserve.gov

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