The Fed's 'No Taper' Sparks a Trading Frenzy

Photograph by Charles C. Place/Getty Images

The Federal Reserve surprised nearly everyone today when its Open Market Committee announced at 2 p.m. that it would not taper its $85 billion in monthly bond purchases because it is concerned about weakness in the economy. The announcement led to an across-the-board rally as investors hurried to plow money into stocks and commodities.

The market reaction was instantaneous: According to data off my Bloomberg terminal, between 1:59 p.m. and 2:00 p.m., the Dow Jones Industrial Average jumped 141 points, from 15,485 to 15,626. Over the next two and a half hours, the Dow added another 50 points to close up 147 points on the day.

The early movement was even more dramatic for the SPY exchange-traded fund, which tracks the movement of the S&P 500 and is the most-traded ETF. Between 1:58 p.m. and 2 p.m., shares of the SPY jumped nearly 1 percent, from $170.8 to $172.4. During those two minutes, trading volume surged from 168,000 shares to nearly 6 million shares. The SPY finished the day up 1.9 percent, with more than half that gain coming in the two minutes surrounding the Fed’s announcement.

Trades in all 8000 NMS Stocks
Courtesy Nanex, LLC

Above is a chart from the guys at Nanex, a Chicago-based market research firm. It shows about one minute of trading. The horizontal line is 2:00 p.m. sharp. Each microscopic dot represents a trade in one of 8,000 stocks that trade on a host of U.S. exchanges. You can see how much trading volume spiked right at 2 p.m. and then died down.

It wasn’t just stocks that popped. Gold and silver exchange-traded funds jumped. So did crude oil. Prices for 10-year Treasuries rose, brining yields down.

All those prices started changing dramatically at least a minute before 2 p.m. The gold buying looks to have started even earlier. The heavily traded SPDR gold ETF gained 1.5 percent between 1:56 p.m. and 2:00 p.m.

This could mean one of two things: either high-frequency traders were making huge bets that the Fed would not taper and programmed their trading algorithms to buy, buy, buy before the announcement was made, or there was some kind of information leakage before 2 p.m.

The FOMC statement goes live on the Federal Reserve website at exactly 2 p.m. About 10 or 12 minutes before that, an embargoed hard copy of the statement is passed out to a handful of reporters in a locked room at the Treasury Department. A spokesman for the Federal Reserve declined to comment on whether the statement gets sent early in electronic versions that might get loaded into news service data feeds.

Nanex’s founder, Eric Hunsader, says the synchronized buying in the seconds before the statement was announced was unlike anything he’d ever seen when it comes to a government data release. “All the volume was jammed up in the first one-millisecond of trading,” says Hunsader. “I’ve never seen something that synchronized, where algos were buying at the same exact time across so many things.”

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