FOMC Meetings: The Wrong Question Most Investors Ask
Every time the Federal Reserve meets, the same question pops up across trading desks, social media feeds, and dinner tables: “What do you think is going to happen to the market after the FOMC?”
It’s a natural question. It may be on most of our minds, if we want to or not. Markets often swing sharply after Powell and the Fed speak. But for most traders and investors, it’s actually the wrong question.
Prediction vs. Preparation
The real question should be: “WHY am I asking this — and does it even matter to me?”
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Long-term investors: If you’re holding quality companies for the next five years, tomorrow’s FOMC volatility is noise. You didn’t sell during post-COVID dips, and you won’t change your long-term thesis because of a single policy statement. In that case, the right answer to “what will happen tomorrow?” is: Who cares?
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Short-term traders: If you’re actively trading, the FOMC does matter — but not in the way most people think. What matters is not your prediction, but your plan: What will I do if the market spikes? What if it dumps? What if it barely moves? You need to better ask how it might affect you, and answer what you want to do about it, REGARDLESS OF WHAT WILL HAPPEN.
Decisions Over Predictions
Markets punish overconfidence. Even if you think you know what’s coming, risk management is what keeps you in the game.
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Example: You’re up 100% in a stock ahead of earnings. You still believe in it long-term, but you trim 15% to lock gains and prepare for a possible dip. If it rallies, you still hold 85%. If it sells off, you’ve secured profits and set yourself up to buy lower.
The question isn’t whether you can guess correctly. The question is whether your decisions hold up no matter what the outcome is. The question is why and how the event matters to you, your strategy, and what you can do about it to improve your situation ahead of time. The what will happen will not matter, in the long run. It should even out, as your decisions become more optimized. So, do you want to sell that stock before tommorrow FOMC or not, and how much? That is the better question and only you can answer it, even if others make their wise opinions. The beginning of investing wisdom is knowing which questions to ask, more than answering the right answers to lesser questions (where you can answer correctly and “win” or answer incorrectly and “lose”.. but with risk mitigation you can position yourself to always win, in the long term).
Risk First, Opportunity Second
Big events like the FOMC are volatility triggers, not free lottery tickets. Smart investors first ask: What’s the worst-case scenario for my current exposure? How will I respond if it happens? Only after protecting risk does it make sense to look for new opportunities once the dust settles. So what will happen after the FOMC meeting tommorrow? Who knows, who cares. What matters is why you’re asking.
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This article was written by Itai Levitan at investinglive.com.