Political Calculations
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05 July 2022

The S&P 500 (Index: SPX) followed the trajectory associated with investors focusing on 2022-Q3 in the week ending the second quarter of 2022. Unfortunately for investors, that trajectory points downward, so the index ended the week much lower than it began and worse, ended up back in bear market territory.

Not that such an outcome is surprising in the current market environment. If you regularly follow our S&P 500 chaos series, you'll recall the following analysis:

We think investors will, once again, shift their forward-looking attention toward 2022-Q3, because what actions the Fed will take next as it scrambles to get ahead of inflation will hold the focus of investors on this quarter. We've updated the alternative futures chart to add a new redzone forecast range to indicate where stock prices will likely go during the next several weeks, also assuming no deterioration of expected dividends or outbreaks of noise in the market.

In the very short term, that redzone forecast range suggests a higher level for the index, but one that could be relatively short-lived. We peeked ahead at the dividend futures-based model's projections for 2022-Q3, and see that the redzone range continues to drop to roughly where stock prices are today.

Those observations are from 21 June 2022, before any of what we described went on to happen, which is visualized in this chart.

Alternative Futures - S&P 500 - 2022Q2 - Standard Model (m=-2.5 from 16 June 2021) - Snapshot on 1 Jul 2022

Next week, we'll feature a first look at the dividend futures-based model's projections for 2022-Q3, which will begin with investors focusing upon this quarter.

Until then, here's our recap of the past week's market moving headlines, in which we find the growing potential for recession is commanding the attention of investors.

Monday, 27 June 2022
Tuesday, 28 June 2022
Wednesday, 29 June 2022
Thursday, 30 June 2022
Friday, 1 July 2022

The CME Group's FedWatch Tool is still projecting half point rate hikes for both July and September 2022 (2022-Q3) with quarter point rate hikes at six-week intervals after that through 2022-Q4 and 2023-Q1, topping out in a range between 3.50 and 3.75% in February 2023. After that, the tool now projects quarter point rate cuts in both March (2023-Q1) and May (2022-Q2), anticipating a recession requiring that action.

Speaking of which, the Atlanta Fed's GDPNow tool now projects real GDP will shrink by 2.1% for the just ended quarter of 2022-Q2, falling that much from last week's zero growth reading. U.S. Treasury Secretary Janet Yellen's "two quarters of negative growth as a good rule of thumb to indicate a recession" may have been met in the first half of 2022.

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01 July 2022

Political Calculations' initial estimate of median household income in May 2022 is $77,265, an increase of $702 (or 0.92%) from the initial estimate of $76,563 in April 2022.

The latest update to Political Calculations' chart tracking Median Household Income in the 21st Century shows the nominal (red) and inflation-adjusted (blue) trends for median household income in the United States from January 2000 through May 2022. The inflation-adjusted figures are presented in terms of constant May 2022 U.S. dollars.

Median Household Income in the 21st Century: Nominal and Real Modeled Estimates, January 2000 to May 2022

Inflation eroded all of the nominal month-over-month gain for American households in May 2022. For the year-to-date, there has virtually been no real growth in median household income.

Analyst's Notes

The BEA made minor downward adjustments to its aggregate wage and salary data for the first four months of 2022. The revisions affected the estimates for January 2022 (-0.015%), February 2022 (-0.016%), March 2022 (-0.005%), and April 2022 (-0.025%).

For the latest in our coverage of median household income in the United States, follow this link!

References

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Population. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 30 June 2022. Accessed: 30 June 2022.

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Compensation of Employees, Received: Wage and Salary Disbursements. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 30 June 2022. Accessed: 30 June 2022.

U.S. Department of Labor Bureau of Labor Statistics. Consumer Price Index, All Urban Consumers - (CPI-U), U.S. City Average, All Items, 1982-84=100. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 10 June 2022. Accessed: 10 June 2022.

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30 June 2022

Earlier this year, the U.S. Sentencing Commission released its study on the recidivism of violent offenders released from federal prisons in 2010. The study tracked some 13,883 individuals to find out how many might go on to be arrested for new crimes within nine years after they completed serving their original sentences. How many of these violent offenders would you predict returned to crime after their release from federal prisons?

We won't keep you in suspense. Within nine years of their release, 63.8% of this sample cohort of violent offenders were subsequently arrested for committing new crimes. No fewer than 26% of this criminal cohort were arrested for new crimes within the first year after they were released, while over half had done so within four years.

The following chart visualizes the Sentencing Commission's data for the number of violent offenders who were arrested for newly committed crimes within one to nine years after they were released from prison in 2010.

Number of Violent Offenders Rearrested for New Crimes Within Nine Years of Being Released from Federal Prison in 2010

We opted to present this data using a Sankey diagram to illustrate both the relative share of total offenders that went on to be arrested for committing new crimes and how many were added to that total within each year following their release from prison. 76.4% of these individuals had been sentenced for their original crimes after 12 January 2005, when the Supreme Court issued a ruling that affected U.S. federal sentencing guidelines, so the vast majority of these former prisoners had served fewer than five years in federal prisons before their release in 2010.

Reference

U.S. Sentencing Commission. Recidivism of Federal Violent Offenders Released in 2010. [PDF Document]. February 2022.

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29 June 2022

What does the future hold for the dividends of the S&P 500 (Index: SPX)?

We're now in the gap between when the index' dividend futures contracts for 2022-Q2 have expired and the actual end of the calendar quarter, which makes it a good time to see what investors expect for the rest of the year. The good news is the outlook for the quarterly dividends per share of the S&P 500 has continued improving since we last checked them at the midpoint of 2022-Q2. Better yet, the futures data extends through 2023-Q2 so we can peer into the first half of 2023.

The following chart reveals those expectations as of Monday, 27 June 2022:

Past and Projected Quarterly Dividends Per Share Futures for S&P 500, 2021-Q2 Through 2023-Q1, Snapshot on 27 June 2022

Here's how the dividend futures have changed since our previous snapshot:

  • 2022-Q2: Up $0.07 per share.
  • 2022-Q3: Up $0.35 per share.
  • 2022-Q4: Up $0.50 per share.

These increases indicate an improved outlook for the S&P 500's dividends has developed over the last six weeks, which you would think would have boosted stock prices during this time. If you've been watching the stock market, you know they've fallen significantly instead and if you've been following our S&P 500 chaos series, you already know why the index has behaved as it has despite its improving outlook.

But this improving outlook may be in jeopardy. With recessionary risks now rising in the U.S., expectations for future dividends will take a greater role in shaping how stock prices behave. That's why we're increasing the cadence for presenting and analyzing future dividend data, which we'll now do at roughly six week intervals. Our next update will arrive in mid-August 2022 and will present the Summer 2022 snapshot of the future for S&P 500 dividends.

About Dividend Futures

Dividend futures indicate the amount of dividends per share to be paid out over the period covered by each quarters 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 "current" quarter of 2022-Q3 began on Saturday, 18 March 2022 and will end on Friday, 16 September 2022.

That makes these figures different from the quarterly dividends per share figures reported by Standard and Poor, who 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.

Reference

The past and projected data shown in this chart is from the CME Group's S&P 500 quarterly dividend index futures. The past data reflects the values reported by CME Group on the date the associated dividend futures contract expired, while the projected data reflects the values reported on 27 June 2022.

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28 June 2022

May 2022's new home sales in the United States were stronger than expected. Political Calculations' initial estimate of the market cap for new homes sold in the U.S. during May 2022 is $32.73 billion, an increase of 3.1% from April 2022's revised estimate of $31.75 billion.

The latest update of our chart shows the surging market capitalization of new homes in the U.S.

Trailing Twelve Month Average New Home Sales Market Capitalization in the United States, January 1976 - May 2022

While rising new home sale prices continued to boost the new home market cap, May 2022's data also benefited from an unexpected increase in the number of sales that came despite surging mortgage rates. Both these factors are illustrated in the next two charts.

New home sales rose in May 2022:

Trailing Twelve Month Average of the Annualized Number of New Homes Sold in the U.S., January 1976 - May 2022

Average sale prices reached $518,033:

Trailing Twelve Month Average of the Mean Sale Price of New Homes Sold in the U.S., January 1976 - May 2022

Because new home sales are counted toward GDP when their sales contracts are signed, a rising trend in the market cap for new homes boosts the U.S. economy. The National Association of Home Builders estimates new home sales contribute 3% to 5% of the nation's Gross Domestic Product.

That may not sound like much, but new home sales are providing a tailwind for an economy slowing under the growing weight of President Biden's inflation. How long that might continue in the economic climate the Biden administration has fostered is an open question.

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About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

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