The S&P 500 (Index: SPX) completed its second Lévy flight event. The dividend futures-based model alternative futures chart indicates investors have shifted their forward-looking focus to the more distant future quarter of 2022-Q3.
The signals sent by the Federal Reserve's minions for their next steps are responsible for the shift in how far forward in time investors are looking in making their current day investment decisions. In the past week and a half, investors absorbed the new information that the Fed's March 2022 rate hike will be followed up by half point hikes through the end of 2022-Q2, which shifted the uncertainty window for what happens next to 2023-Q3.
Those new expectations can be seen in the CME Group's FedWatch Tool, which now projects the Fed's next move will be two consecutive half point rate hikes in May and June 2022 (2022-Q2), followed by a resumption of quarter point rate hikes every six weeks with hikes in July and September 2022 (2022-Q3), and more hikes in November and December 2022 (2022-Q4), followed by two more in 2023, one in February 2023 (2023-Q1) and in May 2023 (2023-Q2).
At the same time, there has not yet been any change in the expectations for the year-over-year change in the growth rate of S&P 500 dividend in 2022-Q3, the outlook for which is more positive than the current quarter of 2022-Q2. As would be expected, the level of the S&P 500 has risen substantially with the shift in focus from 2022-Q2 to 2022-Q3.
The large difference between the dividend growth rates expected between 2022-Q2 and 2022-Q3 also puts the index at risk of a substantial decline, even without any erosion in expected future dividends. Should investors have reason to fully shift their attention back to the current quarter of 2022-Q2, it would likely be accompanied by sharp, sudden decline, on the order of 9-10%. That's without any erosion in the expectations for the S&P 500 future dividends.
The thing that could trigger such a shift is the random onset of new information. Here's our summary of the market-moving headlines from the second to last week of March 2022.
- Monday, 21 March 2022
- Signs and portents for the U.S. economy:
- Crude settles up more than 7% as EU mulls Russian oil ban
- U.S. rate futures raise odds for hefty rate hike in May after Powell comments
- Fed minions wants rate hikes, lots of 'em!
- Fed's Bostic sees 6 rate hikes this year, war risks
- Fed open to speedier interest rates hikes if high inflation persists - Powell
- Bigger inflation developing in the Eurozone:
- Bigger stimulus developing in China:
- ECB minions thinking they may need to do something about inflation, but not along with Fed:
- ECB's Holzmann argues again for rate rise - paper
- ECB will react to second-round inflation effects - Handelsblatt
- ECB should keep 2022 rate hike on agenda, if inflation warrants it -Nagel
- Expect ECB, Fed to be out of sync: ECB's Lagarde
- Wall Street slips after Powell's hawkish remarks
- Tuesday, 22 March 2022
- Signs and portents for the U.S. economy:
- Oil edges lower as EU looks less likely to ban Russian oil
- Gold slips to near 1-week low on Fed Powell's hawkish stance
- Fed minions want rate hikes, big ones! Starting to get onboard with crypto they can control:
- Fed policymakers call for bigger rate hikes to fight inflation
- Fed's Daly: rates need to rise to tamp down too-high inflation
- Fed's Mester calls for frontloading rate hikes, sees rise to 2.5% in 2022
- Fed's Williams: potential for stablecoins to be "very useful"
- Bigger stimulus developing in Japan:
- Japan's central bank renews powerful easing pledge after hawkish Fed signal
- Japan eyes more stimulus as record budget clears parliament
- ECB minions don't think they have a stagflation problem, want to keep stimulus flowing:
- Wall Street gains, with tech, growth shares in the lead
- Wednesday, 23 March 2022
- Signs and portents for the U.S. economy:
- Oil jumps 5% as Caspian pipeline disruption adds to supply fears
- March U.S. auto sales to tumble on rising inflation, Ukraine crisis- data
- U.S. new home sales drop further as mortgages rates rise; prices push higher
- Fed minions getting on board with frequent, bigger rate hikes:
- Fed officials nod to big rate hikes to fight 'inflation, inflation, inflation'
- Bullard: High inflation means Fed must think bigger, faster
- Bigger inflation developing in the UK, India, Russia:
- UK inflation hits 30-year high of 6.2% as Sunak readies response
- Indians tighten belts as Ukraine war drives up prices of necessities
- Inflation in Russia spikes above 14.5%, highest since late 2015
- Bigger stimulus developing in Japan:
- ECB minion wants to keep stimulus flowing, doesn't think dealing with inflation is needed:
- Wall St drops as oil rally, Russia-Ukraine conflict fuel worries
- Thursday, 24 March 2022
- Signs and portents for the U.S. economy:
- Oil slides 2% as EU fails to boycott Russian crude
- U.S. weekly jobless claims drop to lowest level since 1969
- U.S. business activity rises to eight-month high in March - survey
- Fed minions starting to be concerned by rising house prices, getting really excited about hiking rates:
- U.S. housing costs should play role in guiding Fed policy, Waller says
- Fed's Evans backs 'timely' rate hikes, but says careful touch needed
- Fed's Kashkari wants rate hikes, but warns of overdoing it
- Bank of Mexico, Swiss National Bank, BOJ minions start looking to deal with inflation:
- Mexico's president lets slip central bank's announcement of rate hike to 6.5%
- Swiss National Bank shifts focus to inflation after doubling forecast
- BOJ policymaker warns of prolonged inflation due to Ukraine war
- ECB minions studying how to keep rolling out stimulus, say Eurozone won't have recession:
- ECB to weigh more bond buying if war crashes economy -Schnabel
- ECB's Centeno says recession not in ECB's scenario despite Ukraine
- Wall St resumes rally, led by Nasdaq as chipmakers soar
- Friday, 25 March 2022
- Signs and portents for the U.S. economy:
- Oil rises to over $120/bbl after attack on Saudi facilities
- Farm equipment makers cut pre planting season production as U.S. inflation bites
- The Treasury market tumble in 5 charts
- U.S. pending home sales approach two-year low; consumer sentiment slumps
- Fed minions getting excited about hiking rates, maybe not so much about launching digital dollar:
- Fed's Williams open to bigger rate hike if high inflation persists
- Fed's Waller says he sees no need for U.S. central bank digital currency
- Economic impacts from oil geopolitics:
- Core inflation in Tokyo hits 2-year high as energy costs soar
- German ministry wants to halve dependence on Russian oil by summer -Spiegel
- S&P 500 ends higher with financials as Treasury yields jump
The Atlanta Fed's GDPNow tool's latest estimate of real GDP growth in 2022-Q1 has fallen back to 0.9% after data confirming the continued shrinkage of the U.S. real estate market was released.
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