A lot can happen to the outlook for the S&P 500 (Index: SPX) with the random onset of new information.
Friday, 26 November 2021 provides a good example. After having been closed for the Thanksgiving holiday, what is normally a low volume trading day instead turned into a noteworthy event because of the development of what is now being called the Omicron variant of the SARS-CoV-2 coronavirus, which prompted new global travel restrictions with the countries in Africa where the new potentially vaccine-resistant variant was detected.
The initial events related to the new variant took place while U.S. markets were closed on Thursday, 25 November 2021, so by the time markets opened on Friday, stock prices gapped down at the open, then proceeded to close some 2.27% lower than they had previously closed on Wednesday, 24 November 2021.
From our perspective, the change in stock prices is consistent with a small Lévy flight event, as U.S. investors shifted their attention from 2022-Q2 inward toward the nearer term quarters of either 2021-Q4 or 2022-Q1. As it happens, that change moves the trajectory of the S&P 500 from the upper edge of the redzone forecast range on the alternative futures chart back into the middle of the range, which is telling.
We're able to make that determination because of the assumptions we made when we initially set up the redzone forecast range many weeks ago. We had assumed investors would be focusing on the upcoming quarter of 2022-Q1 in the final weeks of 2021-Q4, where we set the middle of the future end of the range to correspond to the dividend futures-based model's projection for what the level of the S&P 500 index would be if investors were focusing on that point of time in the future. (The trajectory associated with 2022-Q1 is not much different from that for 2021-Q4, which is why we say investors may be focusing on either of these quarters.)
We're also fortunate in that we're near the end of period where the past volatility of stock prices prompted us to generate a redzone forecast range in the first place. Just looking a little further forward to the end of the forecast range to look at the relative positions of the trajectories for 2021-Q4/2022-Q1 and 2022-Q2 confirms a shift in investor focus from 2022-Q2 toward the earlier quarters would lead to a shift in the level of the S&P 500 of the magnitude that has occurred.
Since this is an example of how the random onset of new information affects stock prices, here are the headlines we noted for their market-moving potential during the holiday-shortened Thanksgiving trading week.
- Monday, 22 November 2021
- Signs and portents for the U.S. economy:
- Chief Fed minion gets to keep job, mention being concerned by inflation:
- Biden renominates Powell as Fed Chairman, Brainard as vice chair
- Powell's rollercoaster ride at the Fed: From 'enemy' to economic savior
- Explainer-Whether centrist or progressive, Fed's new regulatory chief has long to-do list
- Powell's reappointment gives investors stability
- Powell, Brainard nod to inflation threat in nomination remarks
- Bigger trouble developing in Eurozone:
- Germany's economy is taking a breather but inflation isn't, Bundesbank warns
- Euro slides on Merkel call for tighter COVID curbs, Austria in lockdown
- ECB minions disappointed Eurozone banks aren't as green as they'd like:
- S&P 500 ends lower after Powell nomination
- Tuesday, 23 November 2021
- Signs and portents for the U.S. economy:
- Bond investors ramp up US inflation, rate-hike expectations - Russell Investments
- Biden vows U.S. will get through spike in gasoline prices
- Oil rises 3% to one-week high after U.S. taps emergency reserves
- Fed minion impressed with keeping same boss:
- Fed's Bostic: Powell, Brainard appointments remove uncertainty for Fed
- Analysis-Investors bet Powell's Fed will get more aggressive on inflation
- Recovery signs and causes for concern in Eurozone:
- ECB minions worry about inflation:
- Nasdaq tumbles for second day as Big Tech loses ground
- Wednesday, 24 November 2021
- Signs and portents for the U.S. economy:
- U.S. new home sales rise in October, September revised down
- U.S. consumer spending surges in October; inflation heats up again
- Oil steadies as investors question reserve release
- U.S. economy eyes strong 2021 finish as labor market tightens, spending accelerates
- Fed minions thinking about moving faster to hike rates to fight inflation:
- Gloomy signs in Eurozone:
- German business morale darkens on supply bottlenecks, COVID wave
- Bundesbank chief sees upside risks to inflation
- Wall Street ends higher; Nvidia surge offsets Nordstrom, Gap slide
- Thursday, 25 November 2021
-
- Coronavirus pandemic developments with potential market impacts:
- Friday, 26 November 2021
- Signs and portents for the U.S. economy:
- New Covid-19 variant raises risk of recovery limbo
- Oil settles down $10/bbl in largest daily drop since April 2020
- Fed minion counting on inertia to beat "nu" COVID threat:
- Signs of recovery in Japan, politicians want to assist inflation as more stimulus rolls out, bank bailout widens:
- Japan factory output to post first rise in 4 mths as bottlenecks ease: Reuters poll
- Japan PM Kishida urges companies to raise wages by 3% or more
- Nearly 90% of Japan regional banks receive payments under BOJ scheme
- ECB minions may get wish to keep interest rates low, but are still planning to end emergency stimulus support:
- Money markets scale back ECB rate hike bets on coronavirus variant worries
- ECB sticks to ending emergency support in March despite new COVID threat
- Stocks tumble on new coronavirus variant fear
The CME Group's FedWatch Tool is still projecting a quarter point rate hike in June 2022, the odds of additional hikes later in the year have dropped below 50% with last week's pandemic developments.
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