SPY Trader Sentiment Drops Following Rate Cut

Investors got the interest rate cut they were expecting from the Federal Reserve on Wednesday, but the market didn’t respond the way many had hoped. The SPDR S&P 500 ETF Trust SPY finished the day down about 1%, and the S&P 500 closed back under 3,000.

StockTwits Buzz

The rate cut and its fallout certainly had investors buzzing on StockTwits.

StockTwits reports average message volume related to the SPY ETF was around 148 posts per hour on Wednesday from 9 a.m. to 2 p.m. ahead of the Fed announcement. During that five-hour stretch in anticipation of the rate decision, bullish sentiment for the SPY was 58% among StockTwits posters.

Once the rate cut announcement was out, the market immediately began to drop and sentiment turned decidedly more negative. From 2 p.m. to 8 p.m., SPY message volume remained elevated at 118 posts per hour but bullish sentiment fell to just 44%.

Some of the negative sentiment may be coming from the minority of investors who were hoping for a more aggressive 0.5% cut. Other sellers may have simply been taking profits on the S&P 500’s recent gains in anticipation of the rate cut.

Bullish Track Record

Despite the negative knee-jerk reaction to the rate cut, stock market returns following U.S. rate cuts during periods of economic expansion have historically been extremely good.

Every single time the Fed has cut rates during a period of U.S. economic expansion, the S&P 500 has delivered positive returns over the next 12 months. In fact the S&P 500 has averaged a 16.5% gain during those periods.

While Wednesday’s cut was widely anticipated, mixed post-cut sentiment suggests investors don’t quite know what to make of the rate cut and the initial market sell-off. The CNN market Fear & Greed Index has dropped to 48 on Thursday morning, down from 57 just one week ago.

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