Over the last two weeks, the S&P 500 continued its slowly upward trajectory and set new record highs, closing above 2,600 for the first time ever on the Friday following Thanksgiving 2017.
From our perspective, investors appear to be closely focused on the distant future quarter of 2018-Q2 in setting current day stock prices.
There's an important caveat to note at this point however. Following the release of the minutes from the Fed's Federal Open Market Committee meeting on 31 October-1 November 2017 meeting, which confirmed that the Fed is all but set to announce a hike in short term U.S. interest rates at the end of its' 13 December 2017 meeting, the CME Group's FedWatch tool is now indicating that there is over a 50% probability that the Fed will move to hike short term U.S. interest rates again by the end of the first quarter of 2018, rather than waiting until the end of 2018-Q2 as the futures for the Federal Funds Rate had previously indicated.
| Probabilities for Target Federal Funds Rate at Selected Upcoming Fed Meeting Dates (CME FedWatch on 15 September 2017) | ||||||
|---|---|---|---|---|---|---|
| FOMC Meeting Date | Current | |||||
| 100-125 bps | 125-150 bps | 150-175 bps | 175-200 bps | 200-225 bps | 225-250 bps | |
| 13-Dec-2017 (2017-Q4) | 0.0% | 91.5% | 8.5% | 0.0% | 0.0% | 0.0% |
| 12-Mar-2018 (2018-Q1) | 0.0% | 49.2% | 46.0% | 4.7% | 0.1% | 0.0% |
| 13-Jun-2018 (2018-Q2) | 0.0% | 24.0% | 46.0% | 26.0% | 3.9% | 0.2% |
| 26-Sep-2018 (2018-Q3) | 0.0% | 14.4% | 36.5% | 33.4% | 13.3% | 2.3% |
With investors shifting their focus to that nearer-term future quarter, our dividend futures-based forecasting model suggests that the future trajectory for the S&P 500 will likely shift downward toward the lowest alternative future trajectory shown in our spaghetti forecast chart above.
On top of that, we're also coming up on another one of those periods where the echo of past volatility in U.S. stock prices will affect the accuracy of our forecasting model, which is a consequence of our model's use of historic stock prices as the base reference points from which we project future stock prices. Since the duration of this upcoming echo effect is comparatively short, rather than add a new forecast range to the chart, we'll simply note that we expect that our standard model's forecast will overshoot the actual trajectory of the S&P 500 during the next two weeks, absent a new noise event for the U.S. stock market.
With that said, let's catch up with the major market-moving headlines that caught our attention over the last two weeks.
- Monday, 13 November 2017
- Tuesday, 14 November 2017
- Wednesday, 15 November 2017
- Fed's Evans will go into December meeting with open mind
- Fed should signal tolerance for higher U.S. inflation, Evans says
- Central banks can't fight rise in asset prices explicitly: Fed's Evans
- Strong U.S. economy calls for December rate hike: Fed's Rosengren
- Weak oil weighs on stocks; data puts focus on rate hikes
- Thursday, 16 November 2017
- Oil extends losing streak on U.S. oversupply issues
- [Despite very long track record of being wrong on this very issue.... ] Fed's Mester says not troubled by low inflation, confident it will pick up
- Fed's Kaplan: overshooting employment goal could trigger rate hike
- Which really means: Fed's Kaplan: falling unemployment may trigger rate hikes
- Fed's Williams calls for global rethink of monetary policy
- Fed's Williams says price-level targeting fits current framework
- Fed's Williams says December rate hike 'perfectly reasonable'
- Wall Street rallies powered by Cisco, Walmart; House tax vote supports
- Friday, 17 November 2017
- Monday, 20 November 2017
- Tuesday, 21 November 2017
- Oil rises, but capped as caution sets in ahead of OPEC meeting
- U.S. homes sales accelerate; supply still a constraint
- Stocks rally on growth, earnings outlook; bonds slip
- No impact to major U.S. stock market indices, but interesting: China clamps down on online micro lending; U.S.-listed shares plunge
- Wednesday, 22 November 2017
- Friday, 24 November 2017
Over at The Big Picture, Barry Ritholtz succinctly summarized the pluses and minuses for the U.S. economy and markets for both Week 3 and Week 4 in November 2017.
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