Independent intermarket research

The one intermarket edge that survived: the pre-Fed drift

Q: Isn't cost usually what kills these edges?

Usually, yes, but not here. Break-even is around 15 bp per side against a real cost of 0.3 to 0.5 bp. Cost is not the constraint on this trade; the overnight gap is. Size for the tail, not the spread.

Out of 400+ directional intermarket tests, exactly one held up: US equity index futures drift up overnight into a scheduled Fed rate decision — about a 71% hit rate and roughly +12 bp per meeting after the haircut. It is real, it is small, and it comes with caveats we will not hide.

The pattern, drawn plainly. Enter the equity index at the prior-day close, exit at the decision-day cash open — hours before the announcement. You collect the overnight drift and never hold through the event. Illustrative shape, not a specific backtest.

~71%hit rate, per meeting

+12 bpforward expectation / meeting, after haircut

~8scheduled Fed decisions per year

0 / 28other futures that survived the same test

What actually survived

We ran the intermarket audit the way we run everything: synchronous futures snapshots, a real cost model, and an anchored walk-forward held out of all model selection. Over 400 directional signals went in — lead-lag pairs, ratio spreads, the usual "when bonds do X, buy stocks" folklore. When you correct honestly for multiple testing, almost none of them clear the bar. One does.

It is the documented pre-FOMC drift: US equity index futures tend to rise in the hours before a scheduled Federal Reserve rate decision. Enter long the index at the prior-day close, exit at the decision-day open, before the announcement. One overnight hold, roughly eight times a year. On our re-test that pattern posts a hit rate around 71%, a composite gross drift near +25 bp per meeting, and a gross Sharpe near 1.4. After we haircut it for the regime that inflates it, the honest forward number is closer to +12 bp per meeting.

This is a positioning premium, not a forecast. It does not predict the hike or the cut — you get paid for holding risk into a scheduled event.

Why cost isn't the risk here

For most of what we reject, cost is the executioner. Not this one. Break-even on the drift is roughly 15 bp per side. Real cost on a liquid equity index future is a fraction of a basis point — call it 0.3 to 0.5 bp. So the trade clears its own transaction cost by a factor of thirty or more. The overnight gap is the risk, not the spread. You are holding an equity position through the close, and equities gap. Size for the tail, because it is a genuine tail-concentrated exposure, not a smooth one.

Equity-specific, and only equity

Here is the part that keeps us honest. The drift does not generalise. We put 28 other futures — bonds, metals, energy, FX — through the identical test. Zero survived. FX into the decision is essentially null. There is no "pre-Fed drift" in gold or crude that clears the same bar. That the effect is confined to one asset class is a feature: an edge that shows up everywhere you look is usually a data-mining artifact. This one shows up in exactly the place the academic literature says it should, and nowhere else.

The caveats we won't bury

Eight shots a year. This is event-gated. There are only about 8 scheduled decisions annually, so the edge compounds slowly and you cannot force it.
Regime-amplified. The raw +25 bp overstates steady state. Budget the haircut down to ~+12 bp and do not plan around the headline.
Gap-tail risk. It is an overnight equity hold. The rare adverse gap is where the pain lives — size accordingly.
The out-of-sample test is spent. The anchored walk-forward was, if anything, stronger (hit rate near 75%). But running it once uses it up. Live performance is the only test that still counts.

The honest bottom line

A small, high-quality, capital-efficient overlay. Not a get-rich edge, and we will not pretend otherwise. Its value is exactly that it is one of the very few directional intermarket patterns that survived a deliberately harsh audit — the same audit that killed almost everything else we tested. When you reject 400-plus signals and keep one, the one you keep is worth understanding precisely.

How we test

Every signal is ported to Python and run against real costs — spreads and fills modeled from tick data, not a guessed flat number. A volatility-null benchmark tells us whether a "directional" pattern is really just intermarket noise dressed up. A nine-agent adversarial and robustness workflow tries to break every apparent survivor, hunting look-ahead and impossible fills, and the anchored walk-forward stays in reserve until the end. We report the break-even cost itself, so the margin is yours to judge. It is the same process that rejects roughly 78% of the trading strategies we test — and every one of the 28 non-equity futures we put through the same drift test.

Research and education, not financial advice. No signals, no return promises. Independent, and not affiliated with TradingView.

The names, the exact numbers, the full audit

This page gives you the surviving edge and its caveats. What it does not give you is everything behind the rest of the reject pile: which specific published intermarket and strategy scripts we tested, who wrote them, and the exact after-cost numbers behind each verdict. That is The No List — every strategy and indicator we audited, named, with the reason it lived or died.

Get The No List →

Want the free version first? We drop research, data and the occasional survivor in the FoxAlgo Discord — no pitch, just the work.

FAQ

Is the pre-FOMC drift real, or just a backtest artifact?

It is a long-documented academic effect, and it survived our own cost-aware, walk-forward-gated re-test. On our data it posts a ~71% hit rate and a gross drift near +25 bp per meeting. It is one of the very few directional intermarket patterns that cleared honest multiple-testing.

Does the drift predict whether the Fed hikes or cuts?

No. It is a positioning premium, not a forecast. It does not predict the decision and does not scale with the surprise. You are being compensated for holding equity risk overnight into a scheduled event, nothing more.

Does it work in bonds, gold, oil or FX?

No. We tested 28 other futures the same way and zero survived. FX into the decision is essentially null. The effect is specific to US equity index futures — which is part of why we trust it rather than suspect it.

If it survived, why call it small?

Because it is. There are only about 8 decisions a year, the honest forward expectation is ~+12 bp per meeting after the haircut, and it carries real overnight gap-tail risk. It is a capital-efficient overlay, not a standalone system.

Isn't cost usually what kills these edges?

Usually, yes — but not here. Break-even is around 15 bp per side against a real cost of 0.3 to 0.5 bp. Cost is not the constraint on this trade; the overnight gap is. Size for the tail, not the spread.