The upside down stock market has continued powering upward, with the S&P 500 (Index: SPX) breaking back above the 3,000 level to close the month of May at 3,044.31. That's both 341.84 points (about 10.1%) below where the market peaked back on 19 February 2020 and 806.91 points (about 36.1%) above where the S&P 500 bottomed on 23 March 2020.
Overall, the trajectory of the S&P 500 is continuing to track along within the lower half of the dynamic redzone forecast range we defined for the upside down stock market based on the dividend futures-based model back on 20 April 2020.
We describe the stock market as upside down because investors the expected change in the year over year growth rate of the S&P 500's dividends per share has been negative, where the following chart shows what the CME Group's quarterly dividend futures for the index indicates investors are expecting for the future through June 2021 as of 29 May 2020.
As best as we can tell, the upside down stock market has resulted from investors incorporating expectations for the potential adoption of negative interest rates by the U.S. Federal Reserve, although at present the CME Group's FedWatch tool would appear to be giving a 99.4% probability the Fed will maintain its Federal Funds Rate within the zero bound range of 0% and 0.25% for the indefinite future.
However, that may be the wrong way to interpret what the FedWatch tool is currently indicating. Since the CME Group's analysts have never adapted the tool to accommodate the probability of negative interest rates, which have most certainly been on the minds of both investors and central bankers in recent weeks, it may be more accurate to say that investors are giving a 99.4% probability of the Federal Funds Rate being held within the range of 0% to 0.25% or less into the indefinite future.
For their part, Fed officials have been actively trying to diminish those expectations during the last several weeks, where you can get caught up with the latest in our wrapup of the major market-moving headlines from the Memorial Day-holiday shortened trading week.
- Tuesday, 26 May 2020
- Daily signs and portents for the U.S. economy:
- Bigger trouble developing in China:
- Bigger stimulus/bailout developing in France:
- ECB minions planning on bigger EU stimulus without German banks:
- ECB can deviate from countries' bond-buying quotas as needed
- Exclusive: ECB prepares for the worst: life without the Bundesbank - sources
- ECB's Villeroy: inflation target is symmetrical, flexible and mid-term
- Stocks rally, S&P 500 crosses 3,000 barrier; oil gains
- Wednesday, 27 May 2020
- Daily signs and portents for the U.S. economy:
- Oil slides on U.S.-China tensions, OPEC+ uncertainty
- U.S. businesses hammered by pandemic but see some green shoots, Fed says
- U.S. mortgage applications rise for sixth straight week
- Massive stimulus/bailouts rolled out in EU, Japan:
- 'Repair and Prepare': EU unveils 750 billion euro plan for coronavirus recovery
- Factbox: Nuts and bolts of plan to restart EU's stuttering economy
- Euro zone shares surge on EU recovery plan report, banks shine
- Japan approves fresh $1.1 trillion stimulus to combat pandemic pain
- Fed minions observe U.S. business conditions, problems:
- Bullard: 'High contact' industries still suffering, others adapting as they restart
- Fed's Bullard: Expanded unemployment pay not appropriate as recovery takes hold
- NY Fed's Williams says U.S. economy could rebound in second half but uncertainty remains
- Wall Street rises with economic hopes; bank stocks jump
- Thursday, 28 May 2020
- Daily signs and portents for the U.S. economy:
- Oil rises as higher U.S. refinery rates offsets surprise crude build
- Flurry of U.S. crude export fixtures offers glimmer of hope
- Fed's Kaplan sees global oil glut lasting well into 2021
- Coronavirus unleashing new wave of U.S. layoffs
- Fed's Kaplan says U.S. economy has bottomed, ties rebound to testing
- Bigger trouble developing in Brazil, Japan, South Korea, Russia:
- Brazil unemployment rises to 12.6%, record 4.9 million people leave workforce
- Japan gives bleaker view of exports, employment due to pandemic
- South Korea cuts rates, flags worst year for economy since 1998
- Russia's economy contracts 12% year-on-year in April during coronavirus lockdown
- Australian, U.S. central bankers think they'll be able to avoid negative rates:
- Negative rates, extra QE unlikely in Australia as economy reopens: RBA
- NY Fed's Williams says central bank has tools more powerful than negative rates
- State and local governments upset by world's biggest lender's interest rates:
- Wall Street ends down in late selloff; Facebook and China weigh
- Friday, 29 May 2020
- Daily signs and portents for the U.S. economy:
- What central bankers are thinking about:
- With 'Main Street' in view, Fed weighs risks of job, productivity shocks
- Days from launch, Fed officials eye 'Main Street' program expansion
- Fed's Powell fears second coronavirus wave, reiterates crisis-fighting pledge
- Fed's Powell says Fed to keep on with crisis fight
- Fed's Mester says it's hard to imagine quick V-shaped recovery
- Fed's corporate bond facility bought 15 ETFs in first days of operations
- ECB's Visco says policymakers must counter deflation risk
- Explainer: More central banks eye yield curve control. How does Japan's work?
- Wall Street ends mostly up; Trump comments on China but takes no action on trade
Meanwhile, Barry Ritholtz succinctly summarizes the positives and negatives he found in the past week's markets and economy news as only he can.
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Closing values for previous trading day.
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