Buy the Rumor, Sell the News: What It Means and a Test on 46 Fed Decisions

"Buy the rumor, sell the news" is a market saying: prices rise while traders expect good news, and fall once the news is out, because the buyers who acted on the expectation take their profit when it is confirmed. It describes a real mechanism, expectations being priced in ahead of time, but it is a saying, not a rule. We tested it on a scheduled event whose dates are published in advance: the Federal Reserve's rate decisions.

Why prices can move before the news

A price reflects what traders expect, not only what has happened. If an announcement is widely expected, buyers act before it; when it arrives as expected, there is no one left to surprise. The move after the news then depends on the gap between the news and the expectation, not on whether the news is good. A good report that is less good than hoped can send a price down; a bad one that is less bad than feared can send it up.

That is why the saying works on some events and fails on others. It needs a run-up driven by expectation, and an outcome that does not beat it.

The test: 46 Fed decisions, 2021 to 2026

The Federal Open Market Committee publishes its meeting dates in advance (Federal Reserve, meeting calendars). We took the decision day, the last day of each scheduled meeting, from January 2021 to September 2026: 46 decisions. The October 28, 2026 decision is left out because five sessions had not yet passed after it. On daily closes of an S&P 500 ETF (dividend-adjusted), we measured:

• Before: the return over the five sessions ending the day before the decision.
• Decision day: the close-to-close return on the day itself.
• After: the return over the five sessions following the decision day's close.

The last row covers every five-session window that starts at a close from January 4, 2021 to October 21, 2026. The chart puts the four rows on the same scale.

What the results say

• No run-up beyond normal. The ETF rose in 31 of the 46 weeks before a decision, 67%, against 60% for any five-session window in the same years. On 46 random days drawn 10,000 times (46 distinct days drawn without replacement among the 1,457 eligible days with five sessions on each side, in the same years, with NumPy's default generator and seed 0), the count of rises landed between 22 and 33 in 90% of the draws, and 31 or more in 18% of them: the gap is within what chance produces. And the average gain before decisions (+0.29%) is the same as for any week (+0.30%).
• No sell-off after. The ETF fell in the five sessions after 21 of the 46 decisions. Picking 46 random days from the same series 10,000 times, the count of falls landed between 13 and 24 in 90% of the draws. The result sits inside that range.
• A rise did not predict a drop. Of the 31 decisions preceded by a rise, 14 were followed by a fall, fewer than half. The correlation between the week before and the week after was −0.08, close to zero.
• The noise is large. The five sessions after a decision ranged from −8.46% (after May 4, 2022) to +5.53% (after January 26, 2022 and July 29, 2026). Single cases can be found to fit the saying; the set of 46 does not.

So on Fed decision days, 2021 to 2026, buying the week before and selling after the news was not a pattern the S&P 500 ETF followed. The test covers one market and one type of event; it says nothing about a single stock before its earnings, a currency before a jobs report, or a coin before a product launch, which we did not test.

What sell the news means in crypto

In crypto the phrase is used for scheduled events that traders can see coming for months: an exchange-traded fund approval, a network upgrade. Two famous cases fit the saying, measured on daily closes of the UTC day.

• Spot bitcoin ETFs, January 2024. On January 10, 2024 the SEC approved the listing and trading of a number of spot bitcoin exchange-traded products (SEC, statement of Chair Gensler). Bitcoin had risen 70.3% in three months, from 27,390.12 on October 10, 2023 to 46,653.99 that day. Twelve days later, on January 22, it closed at 39,568.02, 15.2% lower.
• The Ethereum Merge, September 2022. The Merge, the switch of Ethereum to proof of stake, was executed on September 15, 2022 (ethereum.org). Ether had risen 64.6% from its June 18 close of 995.13 to 1,638.39 on September 14. It fell 10.11% on the day of the Merge and closed at 1,245.78 on September 21, 24.0% below the day before.

These are two cases chosen because they are famous, which is the trap described above: they show what the saying means in crypto, not how often it works. We did not test crypto events as a set, and a fall after an event can have other causes than the event itself.

How to trade the news

Trading the news means positioning around scheduled releases or reacting to unexpected ones. The saying is one way of thinking about it; these steps apply whatever view you take.

• Know the calendar. Central bank decisions, employment reports, inflation figures and company earnings come out on dates published in advance. Put them in your plan before you open a position; see stock market news.
• Know the expectation. The market reacts to the gap between the release and what was expected. Before a release, find out what is expected and what is already in the price.
• Size for the gap. Prices can jump past a stop at a release. Size the position so that a jump through the stop is still a loss you accept; see position size.
• Decide before, not during. Write down what you will do for each outcome: stay out, enter after the first move, or hold. Reacting in the first seconds means trading against the fastest participants in the market; see high-frequency trading.
• For unexpected news, wait for the order book to settle. After a surprise, spreads can widen and liquidity can thin out within minutes. A limit order caps the price you accept.

In stocks, single-company news such as earnings moves one share; in forex, a macro release concerns a whole currency, so it can move every pair that contains it. For how central bank tone is read, see dovish and hawkish.

More on news, rates and strategies is in trading concepts.