CNBC’s Jim Cramer said Friday that this week was the latest example of the market going mad after a Federal Reserve meeting.
But based on past market reactions to the central bank’s earlier rate hikes, this week’s activity may not prove all that significant over the long term, he said.
related investment news
The initial reaction to the Fed’s moves is “almost always a fake head,” Cramer said.
The market had a big reaction this week after the Fed’s latest move, Cramer noted – with a harsh sell-off on Wednesday followed by a minor comeback on Thursday and a chaotic session on Friday. While newfound turmoil in Europe’s financial sector dragged stocks lower early Friday, they rallied after those markets closed.
There have been nine hikes in just over a year since the central bank raised interest rates by a quarter point on Wednesday.
The market has followed a pattern where — after the first three days after a Fed decision — it will typically go in the opposite direction over the next month, Cramer said.
Looking at the last eight rate hikes in this cycle, the market reversed direction seven times out of eight over the following month. (There is not enough data to do an analysis of the rate hike in February.)
The only exception was the second in early May. This triggered a harsh sell-off that lasted several days and markets remained basically flat for the following month.
When you zoom out three months, initial market moves — whether positive or negative — tend to reverse each time, Cramer said.
The pattern is too overwhelming to ignore, Cramer said.
Of course, it remains to be seen whether this pattern will continue this time, or whether the initial negative reaction to this week’s Fed move will reverse.
This time, with new emergencies emerging virtually every day, particularly in the banking sector, “it feels dangerous” to predict a rally over the next three months, Cramer said.
But the bottom line is that we’ve been here before, he stressed.
“So, take a deep breath, have some tea and remember that the initial reaction to the Fed’s rate hikes over the past year has been wrong every time,” Cramer said.
Jim Cramer’s Guide to Investing
Click here to download Jim Cramer’s Guide to Investing free to help you build long-term wealth and invest smarter.
