The first week of August 2017 saw the Dow Jones Industrial Average (Index: DJI) progressively hit new closing highs throughout the week, but the S&P 500 (Index: INX) did not, where it fell below its record closing value of 2477.83 set on 27 July 2017 in the previous week.
For the S&P 500 then, stock prices mainly moved sideways during Week 1 of August 2017.
Now that we're outside the echo of past volatility, our dividend futures-based model for forecasting stock prices suggests that investors may have shifted their forward-looking focus from 2018-Q1 to the more distant future quarter of 2018-Q2, although the level of the S&P 500 is still falling within the typical range of variation that we would expect if investors were focused on 2018-Q1.
Checking that observation against the CME Group's Fedwatch tool as of 4 August 2017, which specifically estimates the probability of the timing of the Fed's next change for short term interest rates in the U.S. from their current range of of 100-125 basis points (bps), we find the following odds predicted for the following potential changes at upcoming FOMC meetings:
- 2017-Q3 (20 September 2017)
- No change from 100-125 bps: 98.6%
- Increase to 125-150 bps: 1.4%.
- 2017-Q4 (13 December 2017)
- No change from 100-125 bps: 52.0%.
- Increase to 125-150 bps: 44.8%.
- Increase to 150-175 bps: 3.2%.
- 2018-Q1 (21 March 2018)
- No change from 100-125 bps: 42.3%.
- Increase to 125-150 bps: 45.9%.
- Increase to 150-175 bps: 11.0%.
- Increase to 175-200 bps: 0.8%.
- 2018-Q2 (13 June 2018)
- No change from 100-125 bps: 30.8%.
- Increase to 125-150 bps: 44.5%.
- Increase to 150-175 bps: 20.5%.
- Increase to 175-200 bps: 3.8%.
- Increase to 200-225 bps: 0.3%.
These indicated probabilities suggest that the investors who are willing to bet money on when they expect that the Fed will next act to change short term interest rates are pretty ambivalent between 2018-Q1 and 2018-Q2 as the quarter in which the Fed might actually do so, which pretty much mirrors what we're seeing in our model.
Of course, other factors might influence investors to shift their attention toward other points of time in the future, so we still have to keep our eyes on the new potentially market moving headlines that come out each week.
- Monday, 31 July 2017
- Tuesday, 1 August 2017
- Wednesday, 2 August 2017
- Thursday, 3 August 2017
- Friday, 4 August 2017
Barry Ritholtz succinctly summarized the positives and negatives for the U.S. economy and markets in Week 1 of August 2017.
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:
ironman at politicalcalculations.com
Thanks in advance!
This site is primarily powered by:
CSS Validation
RSS Site Feed
JavaScript
The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.
Other Cool Resources
Blog Roll
Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.
