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.

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

• Signs and portents for the U.S. economy:
• U.S. core capital goods orders, shipments increase strongly
• U.S. pending home sales unexpectedly rebound in May
• Oil rises $2/bbl after G7 vows new Russian sanctions
• Fed minion says next rate hike should be at least 0.75%
• Fed's Daly: 75 bps rate hike likely needed in July
• Bigger trouble, stimulus developing in China:
• China's May industrial profits slump again despite easing COVID curbs
• Iron ore needs China stimulus action, not just words: Russell
• China's central bank will continue to support economic recovery -state media
• Chinese city desperate for home buyers entices villagers with job prospects
• Bigger trouble developing in Russia:
• Russia pushed into historic default by sanctions
• The 'Big Package': How Russia was driven to default
• BOJ minions not dealing with elephant in room:
• BOJ focused on wages, yen at June meeting, no debate on tweaking yield cap
• On Japan's farms, a weakening yen adds to slow-burning discontent
• ECB minions decide they should wait and think some more before making decisions:
• ECB shifts back timing of policy decisions, press conferences
• Wall Street closes down, dragged lower by growth stocks

Tuesday, 28 June 2022

• Signs and portents for the U.S. economy:
• Inflation saps U.S. consumer confidence; house prices remain elevated
• U.S. consumer confidence index tumbles in June
• Fed minions want higher interest rates, claim they won't cause recession:
• Fed's Williams: rates need to rise, don't see recession
• Fed's Daly: growth will slow, but don't expect economy to shrink
• Positive signs, stimulus developing in China:
• Beijing to reopen schools, Shanghai declares victory over COVID
• China's economy recovering but foundation not solid, premier says
• China vows timely policy measures to cope with economic risks
• ECB minions planning to shift deck chairs around Eurozone Titanic:
• ECB to drain cash in offset to new yield-capping scheme -sources
• ECB will keep countries on straight and narrow even if it buys their debt - Lagarde
• Wall Street ends sharply lower as consumer pessimism stokes recession fears
• Bad News' Is Bad news Again: Stocks Slammed on Macro Meltdown, Bonds Shrug

Wednesday, 29 June 2022

• Signs and portents for the U.S. economy:
• Oil slides 2% on rising U.S. fuel stocks and output
• Record trade deficit weighs on U.S. economy in first quarter
• Companies cut spending, jobs as outlook grows less certain
• U.S. economy contracts in Q1; outlook murky as unsold goods accumulate
• Fed minions really want to hike rates in attempt to contain inflation:
• Fed's Powell: 'Clock is running' for Fed to bring inflation down
• Fed's Mester backs 75 bps hike in July if economic conditions remain same - CNBC
• Fed's Mester: Some risk longer-term inflation expectations continue to rise
• Positive growth signs as China lifts zero-COVID lockdowns, more stimulus developing:
• China's June factory activity likely expanded for first time in 4 months: Reuters poll
• China's central bank to step up policy implementation to spur growth
• BOJ minions shout full stimulus ahead!
• BOJ's Kuroda vows to keep easy policy as Japan less affected by global inflation
• BOJ may need to adjust yield cap if inflation overshoots - ex central bank official
• Japan May retail sales rise faster than expected as COVID curbs ease
• ECB minions thinking about how to keep heavily indebted Eurozone governments afloat, see high inflation levels:
• ECB weighs whether to put number on bond-fighting scheme, sources say
• Spain's 12-month inflation surpasses 10% in June, first time since 1985
• German inflation unexpectedly cools off in June at 8.2%
• S&P 500 limps to slightly lower close as quarter-end looms

Thursday, 30 June 2022

• Signs and portents for the U.S. economy:
• U.S. recession "more likely than not", same for Europe - PIMCO
• U.S. consumer spending, underlying inflation slowing
• U.S. employers see signs of cooling job market
• Bigger trouble developing in Japan:
• Japan's worst factory output slump in two years heaps pressure on economy
• Bigger stimulus developing in China, biggest lift from ending government COVID lockdowns:
• China needs to keep options to cut RRR, rates while waiting for bounce, says ex-regulator
• Chinese homebuilders skirt discount limits with 'fancy' promotions -report
• China's factory, service sectors shake off 3 months of lockdown pain
• ECB minions thinking about developing Eurozone recession as unemployment reaches record low; develop scheme to keep indebted Eurozone countries from imploding:
• Recession fears creep into ECB thinking at summer conference
• ECB to ask banks to calculate with recession risk: Enria
• Europe stares at 'stagflation', says UBS
• Euro zone unemployment falls to new record low of 6.6% in May
• German unemployment rises in June as Ukrainian refugees look for work
• Exclusive-ECB to channel cash from north to south in bid to cap spreads - sources
• S&P 500 closes the book on its biggest first-half plunge since 1970
• Stocks sink on fears for global economy, capping worst H1 on record
• 10Y Yields Tumbles Back Below 3.00%, Stocks Slammed

Friday, 1 July 2022

• Signs and portents for the U.S. economy:
• U.S. factory activity slows to two-year low as clouds gather over economy
• U.S. construction spending unexpectedly falls in May
• U.S. housing hold-ups put thousands of jobs on the line
• Post-COVID lockdown recovery signs in China:
• China's June factory activity expands at fastest pace in 13 months - Caixin PMI
• China new home price rises at slightly faster pace in June - private survey
• Bigger trouble developing in the Eurozone:
• Euro zone factory production falls in June for first time in two years -PMI
• Drop in demand weighs on German manufacturing, outlook darkens -PMI
• French manufacturing under pressure as new orders fall-PMI
• Italy June manufacturing growth slowest for two years -PMI
• Spanish factory activity grows in June at slowest pace in 17 months -PMI
• Central banks hiking rates to get ahead of inflation, others not so much:
• Nordic central banks join the 50 bps rate hike club
• Indonesia central bank in no rush to hike rates as inflation hits 5-yr high
• BOJ minions developing a credibility problem:
• Japan Inc. disagrees with BOJ's view cost-push inflation will be temporary
• ECB minions thinking about rate hikes again:
• Another inflation record firms case for bigger ECB rate hikes
• Wall Street ends first day of third quarter with solid rebound

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.

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.

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%).

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.

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.

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.

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:

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.

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.

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:

Average sale prices reached $518,033:

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.