The second week of July 2016 was one of those rare weeks when our futures-based model for projecting the future closing value of the S&P 500 was very nearly dead on target for every day of the week, as long as you recognize that target was fixed by investors focusing on the second quarter of 2017 (2017-Q2) in making their current day investment decisions.
You don't have to take our word for it. We animated what our model forecast and how the S&P 500 actually performed for your entertainment, provided of course that you're entertained by watching the projected trajectories that our futures-based model generates flop about like a fish while, at the same time, the actual trajectory that the S&P 500 takes is overlaid on top of those projections. If you're viewing this post on a site that republishes our RSS news feed and the animation doesn't play, we've posted a YouTube video version of the animation as well.
In putting the animation together, we're taking advantage of a unique opportunity to show the formation of an echo on our model's projections of the future, which developed as a direct response to the market's reaction to the Brexit vote outcome on 24 June 2016 through 25 June 2016.
Starting on 21 June 2016, the animation shows first what the future looked like going into the Brexit vote, then how our model's projections of the future changed in response to the aftermath of the Brexit vote. That outcome shows up as an echo in our model's projections, which appears one month after the actual event occurred. The echo is the result of our model's use of historic stock prices as the base reference points from which we project the future for stock prices.
Beginning on 27 June 2016, the animation then shows the trajectory of the S&P 500's closing daily value on each trading day, which reveals how stock prices reacted as investors shifted their forwarding looking focus from one point of time in the future to another.
The first takes place as a Lévy flight from 27 June 2016 to 30 June 2016, when investors shifted their attention from the expectations associated with 2016-Q3 in the immediate aftermath of the Brexit vote to the more distant future of 2017-Q1.
The stock market's focus then held on 2017-Q1 from 30 June 2016 through 7 July 2016. On 8 July 2016, the collective focus of investors shifted in a second Lévy flight, from 2017-Q1 to the even more distant future of 2017-Q2, where it held through the rest of the week, very closely matching the exact trajectory our futures-based model forecast associated with investors being very closely focused on that future quarter.
From the perspective that investors simply appear to have maintained their focus on 2017-Q2 through the entire week, it was a pretty boring week overall, even if some market observers were perplexed as to why stock prices behaved as they did in the face of a week of turmoil in many areas of the world.
But for the U.S. stock market, here is the news that we flagged as being the significant for the S&P 500 in Week 2 of July 2016.
- Monday, 11 July 2016
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- Fed's George says U.S. interest rates are currently too low - to which U.S. investors responded by ignoring Fed's George (see next headline!)
- S&P 500 hits record high on economy, earnings bets
- Tuesday, 12 July 2016
- Wednesday, 13 July 2016
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- Fed should be patient in removing monetary accommodation; Kaplan - also Fed's Kaplan urges 'slow, gradual, careful' approach on rates
- S&P 500, Dow end at record highs despite caution; oil falls
- Fed's Harker now sees just up to 2 rate hikes this year - Harker is becoming more dovish. Back in March, he was expecting "at least three".
- Thursday, 14 July 2016
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- Fed's Lockhart says two rate increases still possible this year - also, Fed's Lockhart: Brexit, uncertainty, require patience on rates
- U.S. Fed buys $7 billion of mortgage bonds, sells none - follow this link. It turns out that the Fed's QE program aimed at lowering U.S. mortgage rates never really ended, even though top-line growth in the Fed's balance sheet flattened out to show little change from month to month - they've managed to keep the mortgage rate-lowering portion of their QE program going at a low level progressively changing the composition of their holdings.
- JPMorgan-powered rally pushes S&P, Dow to new highs - not a bad day for JPM, which also saw the headline "JP Morgan ready to lend seven billion euros for Monte dei Paschi bad-loan deal: paper, which would also boost confidence for Europe's struggling banking industry.
- Friday, 15 July 2016
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