The first week of October 2022 saw the S&P 500 (Index: SPX) swing wildly along with investor expectations for future interest rates.
Starting from its Friday, 30 September 2022 closing value of 3,585.62, the index powered upward early in the week to reach a high of 3.790.93 by the close of trading on Tuesday, 4 October on the news the Royal Bank of Australia would not hike the interest rates it controls by as much as expected because of developing recessionary conditions. With the U.S. economy faced with the similar situation, investors began anticipating the Federal Reserve would also be forced to pull back its recent rate hike ambitions, which would perhaps peak in 2022-Q4, shifting investor attention toward that nearer term horizon.
That expectation had a short life thanks to a full court press by the Fed's minions on Thursday, 6 September, before being fully dashed by a stronger-than-expected September 2022 jobs report on Friday, 7 September 2022. The S&P 500 ended the trading week at 3,639.66, right in the middle of the alternative futures chart's redzone forecast range that assumes investors are focusing on the more distant future quarter of 2023-Q2.
Which is to say the index behaved as the dividend futures-based model suggests it should given where it started and how the investment horizon shifted with the week's changing expectations of the future. The week's action almost qualifies as two Lévy flight events, and would have had the index closed just 20 points higher on Tuesday, 4 October 2022. As it was, the index moved entirely within the range associated with investors focusing their forward-looking attention on 2023-Q2, so we cannot definitively reject the hypothesis that's all investors did during the week that was. We can only say they appear to have briefly shifted most of their attention from 2023-Q2 to 2022-Q4, before locking it back on 2023-Q2 again.
Here are the week's market moving headlines to color in the context behind the numbers from the week's trading action.
- Monday, 3 October 2022
- Signs and portents for the U.S. economy:
- Oil jumps $4 as OPEC+ weighs biggest output cut since 2020
- Inflation to put U.S. auto industry in low gear
- Fed minions say they're going to keep fighting inflation:
- Fed's Williams says central bank has more work to do to cool inflation
- Permanent shifts in inflation could mean more volatile policy - Fed's Barkin
- Bigger trouble developing in Japan:
- Japan's business mood worsens as costs cloud outlook
- Japan PM Kishida vows new steps to beat inflation as approval ratings slide
- Japan ready to take 'decisive' steps on yen - finance minister
- Bigger trouble developing in the Eurozone:
- Euro zone eyes temporary, targeted energy support amid high inflation
- Euro zone factory activity declined again in Sept as energy bills bite -PMI
- BOJ minions starting to notice inflation:
- Wall Street closes with sharp gains as final quarter begins
- Tuesday, 4 October 2022
- Signs and portents for the U.S. economy:
- Oil jumps more than 3% ahead of OPEC+ meeting on supply cuts
- U.S. shale producers to remain on sidelines if OPEC+ cuts output
- U.S. pushing OPEC+ not to cut oil output -source
- U.S. job openings drop sharply, labor market starting to loosen
- Fed minions say they're standing by to crank interest rates higher, not worried about causing recession:
- Fed's Daly: need further rate hikes to beat inflation
- Fed's Jefferson says inflation is U.S. central bank's most worrisome problem
- Dallas Fed says inflation surge badly eroding many American's wage gains
- Bigger trouble developing in Japan, South Korea:
- Consumer prices in Japan's capital rise at fastest pace since 2014
- Japan's cash in circulation falls for 1st time since 2012 - BOJ
- S.Korea factory activity weakens for third month in Sept - PMI
- Bigger trouble developing in the Eurozone:
- Euro zone Aug producer prices rise slightly more than expected
- Pressure on Germany as energy crunch revives EU divisions over joint debt
- Some central bank minions starting to back off from bigger rate hikes:
- ECB minions growing excited to impose bigger rate hikes:
- Wall St rallies as data, RBA move lifts hope of Fed easing
- Wednesday, 5 October 2022
- Signs and portents for the U.S. economy:
- Oil rises to 3-week highs as OPEC+ agrees to deep cuts, U.S. stockpiles fall
- Fed says people hate inflation, Census survey suggests it runs deep
- U.S. trade deficit lowest in more than a year as imports drop
- Fed minions who let inflation get out of control say they're only getting started fighting it:
- Fed's delayed inflation fight sparks fears of a policy overcorrection
- Fed's Bostic says inflation fight "still in early days"
- Fed's Daly: inflation 'problematic,' interest rates to rise
- Bigger trouble developing in Eurozone:
- Euro zone likely to endure recession as downturn deepens
- German services sector weakens in Sept slightly more than initial estimate -PMI
- French Sept services sector growth slightly less than flash forecast -final PMI
- More central bank minions backing off from bigger rate hikes:
- Wall St ends down as two-day rally fizzles on data, Fed message
- Thursday, 6 October 2022
- Signs and portents for the U.S. economy:
- Fed minions say they can't stop, won't stop rate hikes, no matter what they do to the economy:
- Fed policymakers, newcomers included, sing the same battle hymn
- Fed's Kashkari: 'quite a ways away' from pausing rate hikes
- Fed's Evans: rates headed to 4.5%-4.75% by spring of 2023
- Fed's Waller sees further aggressive rate hikes in inflation battle
- Fed must be 'singularly' focused on inflation, Mester says
- Fed's Cook supports "preemptive" rate hikes against "stubbornly" high inflation
- Eurozone recession to arrive on Germany's schedule:
- Exclusive-Germany to slide into recession next year: source, citing provisional figures
- Euro zone retail sales fall as expected in August
- German industrial orders slump more than expected in August
- Japanese currency crisis expected to get worse:
- ECB minions thinking inflation might be a problem:
- Wall Street closes lower as the Fed pounds rate hike drum
- Friday, 7 October 2022
- Signs and portents for the U.S. economy:
- U.S. job growth solid in September; unemployment rate falls to 3.5%
- Oil jumps 4% to 5-week high lifted by OPEC+ output cut
- OPEC+ oil output cut shows widening rift between Biden and Saudi royals
- U.S. banks' Q3 profits set to shrink on economic risks, deal slump
- FedEx Ground to lower holiday volume forecasts - internal memo
- Fed minions getting excited to have more, bigger rate hikes:
- Fed to deliver another big rate hike as job market fails to cool
- Fed's Williams says more rate hikes needed to bring down inflation
- Bigger trouble developing in the Eurozone:
- Bank of Korea minions gearing up to hike rates:
- Bank of Korea to go for second big hike on Wednesday: Reuters Poll
- S.Korea c.bank chief says headline inflation could stay around 5% through Q1 2023
- ECB minions thinking Eurozone is becoming too demanding, want to get out of having to hold so much EU government debt:
- Euro zone demand surge playing increasing role in excessive inflation: ECB
- ECB will have to reduce bond holdings in foreseeable future, Nagel says
- Wall Street dives, oil surges as investors prepare for more rate hikes
The CME Group's FedWatch Tool continues to project a three-quarter point rate hike when the FOMC next meets on 2 November 2022, followed by a half point rate hike in December (2022-Q4). In 2023, the FedWatch tool projects a quarter point rate hike in February (2023-Q1), setting the top for the Federal Funds Rate's target range at 4.50-4.75%. After last week's stronger than expected jobs report, the FedWatch tool anticipates that rate will be held through most of the year, with a quarter point rate cut now expected in December (2023-Q4).
The Atlanta Fed's GDPNow tool's projection for real GDP growth in the just-ended calendar quarter of 2022-Q3 rose from +2.4% to +2.9% as the U.S. economy rebounded from the week first half of 2022. The Bureau of Economic Analysis will provide its first official estimate of real GDP growth in 2022-Q3 at the end of October 2022.
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