.png){kind=small}
Introduction
September 19th, 2024, was a pivotal day for markets following the much-anticipated FOMC (Federal Open Market Committee) meeting and a 50bps cut. Traders and investors were ready for some significant action, with predictions flying about how markets would react post-rate announcement. However, what unfolded surprised many. In this blog, we’ll break down the events of that day, explore why some people’s strategies fell apart, and what this could mean for future trades.
Summary of Key Market Reactions Post-FOMC
The markets didn’t behave the way many expected on September 19th, 2024. Here’s what happened in a nutshell:
The Fed's Announcement: The FOMC executed its expected policy, which was widely debated beforehand.
Stocks Initially Sold Off: The market took an initial hit, but then quickly reversed, leaving many traders scrambling.
Failed Trades & Gaps: Many traders had bet on the “sell the Fed news” strategy, but things didn’t go as planned. The market gapped up the next morning, catching shorts off-guard.
The Bank of Japan’s Influence: With the Bank of Japan's meeting looming, traders were cautious, influencing key sectors like bonds and currency markets.
Let’s unpack these points in more detail and try to understand what exactly happened, and more importantly—why.
The Misstep: Betting on "Sell the First Cut"
In the weeks leading up to the FOMC meeting, there was a growing consensus among a subset of traders that the first interest rate cut would be the moment to sell. This theory had circulated for months, with many expecting the initial reaction to be a sell-off.
But here's the thing: when everyone starts saying the same thing—especially traders who have historically been wrong (often referred to as "Fades")—you have to wonder if they’re right this time. Spoiler alert: they weren’t.
As soon as the Fed executed its policy change, the market did what many expected at first—it sold off. For a moment, it looked like the plan to sell the news was spot on. But here’s where things got tricky. Instead of sustaining that downward momentum, the market quickly reversed.
By the next morning, it was all over for those holding short positions. The market gapped up, leaving these traders with losses and forcing them to cover their shorts. Essentially, the "sell the first cut" strategy failed almost immediately.
Why Did the Strategy Fail?
This failure wasn’t just about bad timing. It was about bad consensus. When too many traders piled onto the same idea—especially when those traders are typically wrong—the odds of that strategy succeeding plummeted. There was a brief moment of success for the short sellers, but the market quickly moved against them, and many were caught off guard.
The Market Gap: What Happened?
Gaps in markets occur when prices jump from one level to another without any trading in between, often due to significant news or events. On September 19th, traders woke up to a huge gap in the market, which opened above the previous day’s highs. This was an instant red flag for anyone holding short positions. Those traders who bet on the "sell" strategy had to cover their losses quickly, adding fuel to the market’s upward move.
The Takeaway: What Can We Learn?
The events of September 19th, 2024, serve as a reminder that markets can be incredibly unpredictable—especially when there's too much consensus around a specific trade. The "sell the first cut" strategy failed not just because of bad timing but because too many people jumped on the bandwagon.
As a retail trader using the ITPM approach, we should never be heavily influenced by market reactions. We are pure fundamental stock pickers, managing our risk with a Long/Short portfolio. This helps us steer clear from these knee jerking market reactions and stick to a clear strategy.
Disclaimer:
The information provided in this article is for general informational purposes only. It is not intended to be financial advice and should not be construed as such. Always consult with a qualified financial advisor before making any investment decisions. The author and publisher are not liable for any financial losses or damages that may result from the use of this information.