If you were to ask a random stock market analyst today if they could name any stocks that are in a bubble, you would probably get a very short list. They would almost certainly cite stocks like Palantir (NASDAQ: PLTR) or Nvidia (NASDAQ: NVDA) or just about any AI stock.
Chances are however they won't name a 118-year-old company like United Parcel Service (NYSE: UPS). And yet, if you pay attention to how its stock price has behaved during the last five years, it shows all the classic hallmarks of being a stock in a bubble!
What are those classic hallmarks? For that, we have to turn to our working definition of what a bubble is in the first place:
An economic bubble exists whenever the price of an asset that may be freely exchanged in a well-established market first soars then plummets over a sustained period of time at rates that are decoupled from the rate of growth of the income that might be realized from owning or holding the asset.
For stocks, the price of a share of stock represents the price of an asset and dividends represent the income that might be realized from owning or holding an asset. By our working definition, a bubble will consist of two parts: an inflation phase, where the stock price soars at a rate that's decoupled from the growth rate of its underlying dividends per share, and a deflation phase, where the stock prices falls at a rate that's independent of how its dividends are changing.
We can show UPS' stock has been in a bubble during the past five years. The following chart tracks how UPS' share price has changed with respect to its projected forward-year dividends per share from August 2018 through August 2025.
Here, we see UPS' stock underwent an inflation phase from 5 May 2020 through 1 February 2022, coinciding with its boom in business during the coronavirus pandemic as lockdowns by state and local governments prevented consumers from shopping and buying from brick and mortar stores. After which, the company's stock price entered into a deflation phase as the coronavirus pandemic emergency ended.
The three most recent data points in the chart assume UPS won't change the amount of its future dividends over the next year. But in reality, with the stock price having fallen below its 2020 coronavirus pandemic lows, the company may well need to cut its dividend in the near future. If it does, we think a dividend cut on the order of 40-50% would be likely.
How much it will actually cut its dividend depends on how well the company's strategic decision to stop delivering packages for Amazon (NASDAQ: AMZN) in favor of other customers whose business is more profitable for the company goes. It also hinges on shrinking the number of employees it has and closing facilities.
In any case, it appears UPS is nearing the end of the deflation phase of the bubble it has been in. All that remains to close the books on its five-year-long bubble is how it addresses its now outsize dividend for its share price.
Disclaimer: We hold no position of any kind in UPS. We're only analyzing the company and its stock because we were surprised to discover it has been behaving like a stock in a bubble!
Image credit: Multicolored soap bubble image by Alexa from Pixabay.
Labels: ideas, stock market
The outlook for the S&P 500's dividends in the current and remaining quarters of 2025 has changed in the month since we presented our previous snapshot of their future. They have changed for both the worse and for the better since we took that snapshot just over a month ago.
The change for the worse applies to the current quarter of 2025-Q3, while the change for the better holds for the fourth and final quarter of 2025.
Our last snapshot of the CME Group's S&P 500 Quarterly Dividend Index' Futures quotes was taken on 13 August 2025. The new snapshot is from Monday, 15 August 2025. Here is our text summary of how they changed:
- 2025-Q3: Decrease of $0.17, declining to $19.64 per share
- 2025-Q4: Increase of $0.03, rising to $19.88 per share
The following animated chart shows how expectations for the S&P 500's quarterly dividends per share changed in the month from 13 August 2025 to 15 September 2025. If you're reading this article on a site that republishes our RSS news feed, you may need to click through to our site to see the animation.
As a special bonus, here's how the S&P 500's dividends expected in the first quarter of 2026 changed!
- 2026-Q1: Increase of $0.20, rising to $20.94 per share
If that expectation holds, it will represent a year-over-year increase of $0.61 per share, or three percent, over 2025-Q1's finalized $20.33 per share.
More About Dividend Futures Data
How changes in the outlook for dividends at specific points of time in the future contribute to changes in stock prices is described by this math.
For this series, we have been taking a snapshot of the CME Group's S&P 500 quarterly dividend futures data shortly after the second or third week of each month.
Dividend futures indicate the amount of dividends per share to be paid out over the period covered by each quarter's dividend futures contracts, which start on the day after the preceding quarter's dividend futures contracts expire and end on the third Friday of the month ending the indicated quarter. So for example, as determined by dividend futures contracts, the now "current" quarter of 2025-Q3 began on Saturday, 21 June 2025 and will end on this Friday, 19 September 2025. From the perspective of dividend futures, 2025-Q4 will become the current quarter on Saturday, 22 September 2025.
Because dividend futures are tied to options contracts that run on this schedule, that makes these figures different from the quarterly dividends per share figures that are reported by Standard and Poor. S&P reports the amount of dividends per share paid out during regular calendar quarters after the end of each quarter. This term mismatch accounts for the differences in dividends reported by both sources, with the biggest differences between the two typically seen in the first and fourth quarters of each year.
Image Credit: Microsoft Copilot Designer. Prompt: "A crystal ball with the word 'SP 500' written inside it". And 'Dividends' written above it, which we added.
Labels: dividends, forecasting, SP 500
At long last, the Federal Reserve is on the verge of resuming rate cuts.
The Federal Reserve last cut the Federal Funds Rate to its current target level of 4.25-4.50% in December 2024. When it did, it lowered the probability of recession predicted by the recession forecasting method we've been tracking to its lowest level since early 2023.
But it never dropped below the 20% threshold. Currently, the recession probability method developed by Jonathan Wright while working for the Federal Reserve Board back in 2006 indicates the U.S. economy has a 26.5% chance the National Bureau of Economic Research will someday determine a period of economic contraction began sometime within the 12 months from 15 September 2025 through 15 September 2026.
The following update to the Recession Probability Track shows how the probability of recession has evolved from 20 January 2021 through 15 September 2025 in the context of how the difference between the yields of the 10-year and 3-month U.S. Treasuries combined with the level of the Federal Funds Rate have changed over this time.
Because Wright's recession forecasting method is forward-looking, here's a guide for interpreting what it has communicated about the periods in which the probability of recession has been elevated. The following chart presents the recession probability the recession forecasting model has projected aligned with the end of the period to which the forecast applies, covering the forecast periods from 30 April 1983 through 15 September 2026, which covers the historical data from which it was developed.
Here is a summary the full effective ranges of dates that apply for several key thresholds of elevated probabilities of recession that the model has projected. Note that we're still within the periods to which several of these heightened probabilities apply, which we've indicated with red boldface font.
50% Probability of Recession
- 13 February 2023 through 29 November 2025
60% Probability of Recession
- 25 April 2023 through 29 October 2025
70% Probability of Recession
- 25 May 2023 through 8 October 2024
- 31 January 2024 through 29 March 2025
- 5 September 2024 through 20 September 2025
The three sets of dates that apply for a 70% or greater probability of recession relate to the "triple-top" series of peaks the model recorded since mid-2023.
The end of the first period at this greatly elevated recession probability coincides with when the U.S. Federal Reserve initiated a new series of interest rate cuts that took place between September and December 2024 to forestall a recession from starting in the U.S. during the 2024 election season.
The first two periods coincide with a period of anemic job growth in the U.S. economy, which is confirmed by Bureau of Labor Statistics data that has undergone two massive downward revisions in the last 13 months.
The third period coincides with this week's timing for when the Federal Reserve is expected to resume cutting U.S. interest rates to address a slowing economy.
The most important thing to take away from this retrospective analysis is that Wright's recession model's forecasts for these elevated recession probabilities that apply today were set more than a year ago. Today's economic weakness has been baked in for a long, long time.
Looking forward, we anticipate the Fed's expected action to cut interest rates will finally cause the probability of recession to resume dropping to lower levels. We will continue following the Federal Reserve's Open Market Committee's meeting schedule in providing updates for the Recession Probability Track until the U.S. Treasury yield curve is no longer inverted, which has already happened, and the future recession odds retreat below a 20% threshold, which is yet to come. We think this second event may occur in the next six to twelve weeks.
Analyst's Notes
The recession probability we've presented is based on the Federal Reserve Board's yield curve-based recession forecasting model, which factors in the one-quarter average spread between the 10-year and 3-month constant maturity U.S. Treasuries and the corresponding one-quarter average level of the Federal Funds Rate. If you'd like to do that math using the latest data available to anticipate where the Recession Probability Track is heading, we have provided a tool to make it easy to do.
For the latest updates of the U.S. Recession Probability Track, follow this link!
Previously on Political Calculations
We started this new recession watch series on 18 October 2022, coinciding with the inversion of the 10-Year and 3-Month constant maturity U.S. Treasuries. Here are all the posts-to-date on that topic in reverse chronological order, including this one....
- U.S. Recession Probability as Fed Finally Set to Resume Rate Cuts
- U.S. Recession Odds Holding Mostly Steady with Fed Holding Off on Rate Cuts
- U.S. GDP Contracts as Recession Odds Tick Up with Fed on Hold
- Decline in U.S. Recession Odds Stalls with Pause in Fed Rate Cuts
- U.S. Recession Probability Plunges to 27%
- U.S. Recession Probability Drops Below 50%
- U.S. Recession Odds Fall with Fed Rate Cut, But Are Still Elevated
- Triple Top Pattern Locking In for U.S. Recession Probability
- Triple Top Developing for U.S. Recession Probability
- U.S. Probability of Recession in Next Twelve Months Hovers Near 70%
- Recession Probability Falls After Hitting Double-Top
- U.S. Recession Probability Nears a Double-Top
- Probability of U.S. Recession Resurges to Nearly 75%
- U.S. Recession Odds Recede to Two Out of Three Chance in 2024
- U.S. Recession Probability Continues Receding on All Hallow's Eve
- U.S. Recession Probability Starts to Recede
- Probability of Recession Starting in Next 12 Months Breaches 80%
- U.S. Recession Probability on Track to Rise Past 80%
- U.S. Recession Probability Reaches 67%
- U.S. Recession Probability Shoots Over 50% on Way to 60%
- Recession Probability Nearing 50%
- Recession Probability Ratchets Up to Better Than 1-in-6
- U.S. Recession Odds Rise Above 1-in-10
- The Return of the Recession Probability Track
Image Credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of Federal Reserve officials asking a Ouija board whether to cut interest rates where the pointer is on the word 'Yes'".
Labels: recession forecast
The S&P 500 (Index: SPX) continued its "sideways-to-slightly-up" trajectory in the trading week ending Friday, 12 September 2025, although this week, it moved more slightly up than sideways! The index closed out the week at 6,584.29 after setting three new consecutive record highs on Tuesday through Thursday, dipping just 3.18 points (-0.05%) on Friday. Overall, the index closed out the trading week about 1.6% higher than it had closed out the preceding week.
The biggest market-moving headlines of the week was the release of the Producer Price Index (PPI) on Wednesday, 10 September and the Consumer Price Index (CPI) on Thursday, 11 September. Here, the PPI was down but the CPI ticked up. More importantly, the although the CPI ticked up, it stayed within the range it has run since June 2024. The main drivers of consumer price inflation during the month came from services rather than goods, dispelling the claim of tariffs causing widespread inflation to which several Federal Reserve officials had bitterly clung to justify their not resuming rate cuts in the face of a U.S. economy that has been slowing without them during 2025.
With that poorly supported hypothesis debunked, the inflation data all but cinched the probability the Federal Reserve's Open Market Committee would act to cut the Federal Funds rate by a quarter point at the end of its two-day meeting on Wednesday, 17 September 2025.
The path of the S&P 500 continues to follow the projected trajectory associated with investors focusing on the distant future quarter of 2026-Q2. The latest update of the alternative futures chart shows that outcome.
Speaking of rate cuts, the CME Group's FedWatch Tool projects a 96%+ probability the Fed will cut the Federal Funds Rate by a quarter percent at its 17 September (2025-Q3) meeting on Wednesday, 17 September 2025. Beyond that date, the FedWatch tool forecasts additional quarter point rate cuts will take place on 29 October (2025-Q4) and 10 December (2025-Q4), then pausing for a cycle and resuming on 18 March (2026-Q1).
Here are the market moving headlines of the week that was:
- Monday, 8 September 2025
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- Signs and portents for the U.S. economy:
- Bigger trouble developing in China:
- Bigger trouble developing in Japan:
- ECB minions think they may be done with rate cuts for now amid signs of bigger trouble developing in the Eurozone:
- Are we done already? Five questions for markets ahead of ECB
- German exports unexpectedly fall, investor morale plunges
- Crisis-prone France sinks deeper into debt quagmire
- Nasdaq ends at a record, stocks rise ahead of key inflation reports
- Tuesday, 9 September 2025
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- Signs and portents for the U.S. economy:
- US employment growth through March revised sharply lower
- Payrolls faced massive downward revisions due to faulty birth-death model – Pantheon Macroeconomics
- BLS Employment Data Revisions Worse Than 2009, Setting Record
- Oil rises nearly 2% after Israeli attack in Qatar
- Fed minions fully expected to resume rate cuts after big jobs number miss:
- Next prime minister to focus on Japan's inflation:
- S&P 500 notches record high close, investors bet on Fed rate cut
- Wednesday, 10 September 2025
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- Signs and portents for the U.S. economy:
- Producer Prices Unexpectedly Dropped In August, YoY Inflation Tumbles
- US 30-year mortgage rate slides to 11-month low, MBA data shows
- US misses out on billions of dollars of China soybean sales midway through peak season
- Oil prices up after Israeli attacks, but oversupply caps gains
- Fed minions get more data showing tariffs not meaningfully contributing to inflation, ethically challenged Fed minion gets reprieve from friendly judge, new minion headed to confirmation:
- Fed seen on course for rate cuts after PPI data
- US judge temporarily blocks Trump from removing Fed Governor Cook
- Trump's Fed nominee Miran heads toward swift Senate confirmation
- Less deflation developing in China:
- Change in Japan's leadership giving BOJ minions something to think about:
- Japan PM hopeful Motegi endorses BOJ's plan to gradually normalise monetary policy
- Ishiba's departure gives BOJ pause for thought on rate hikes
- U.S. stocks extend winning streak after PPI Index comes unexpectedly lower
- Thursday, 11 September 2025
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- Signs and portents for the U.S. economy:
- US inflation rises to 2.9% in August
- US Consumer Prices Rise More Than Expected In August From Services Not Tariffs
- Instant view: US consumer prices rise more than expected, but a rate cut still coming
- Oil prices fall nearly 2% on oversupply and weaker US demand
- Fed minions expected to belatedly resume rate cuts after nine month pause after inflation report:
- BOJ minions expected to resume hike Japan's interest rates to fight inflation they unleashed, thinking about unloading ETFs they bought to stimulate Japan's economy:
- BOJ to raise interest rate again in Q4, majority of economists say: Reuters poll
- BOJ signals final phase of Ueda's stimulus unwind - selling ETFs
- ECB minions leave Eurozone interest rates alone:
- ECB holds interest rates steady at 2%
- Lagarde's statement after ECB policy meeting
- ECB governors eye December as next chance for any cut, sources
- Dow tops 46k as Wall Street rallies to new record highs
- Friday, 12 September 2025
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- Signs and portents for the U.S. economy:
- Oil jumps after drones strike Russian terminal
- Corporate Earnings Slowdown Signaled By Employment Data
- USDA projects record US corn crop, biggest harvested acres since 1933
- Fed minions having trouble reading Fed's fear meter:
- Bigger international loans developing in China, China central bank minions focused on Fed, using "stern lectures" to address problems of overcapacity:
- China central bank to better regulate cross-border yuan financing between banks
- China caught in policy dilemma as Fed rate cut looms
- China has a new overcapacity fix: stern lectures
- BOJ minions expected to hold rates steady this month:
- ECB minions, after choosing to do nothing now, thinking about going in different directions:
- ECB policymakers keep rate options open amid uncertain outlook
- ECB’s Nagel says further rate cuts would threaten price stability
- ECB's Villeroy is not ruling out a further rate cut
- Nasdaq sets week-long record closing streak, S&P and Dow stall as Fed decision looms
The Atlanta Fed's GDPNow tool projection of real GDP growth in the U.S. during the current quarter of 2025-Q2 ticked up to +3.1% after predicting +3.0% in the preceding week.
Image credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a Wall Street bull who is excited to open a present from a Federal Reserve official that says 'RATE CUT'". Pretty interesting result from the AI in that the Fed official looks pretty irked at having to give up the rate cut!