The S&P 500 Calms Down in Week 3 of February 2018

The third full week of February 2018 marked the quietest week for the S&P 500 (Index: INX) over the past month, although the market closed on Friday, 23 February 2018 with an unexpectedly strong rally.

That strong response on Friday appears to have been largely motivated by the news that the Federal Reserve would be less aggressive than had been speculated in its plans to hike short term interest rates in the U.S. during 2018. The following table shows what investors expect for the future for the Federal Funds Rate in 2018, where quarter point rate hikes are expected to be announced at the Fed's Open Market Committee meetings scheduled for the end of March (2018-Q1), June (2018-Q2) and December (2018-Q4).

Probabilities for Target Federal Funds Rate at Selected Upcoming Fed Meeting Dates (CME FedWatch on 23 February 2018)
FOMC Meeting Date	Current
	125-150 bps	150-175 bps	175-200 bps	200-225 bps	225-250 bps	250-275 bps	275-300 bps
12-Mar-2018 (2018-Q1)	16.9%	83.1%	0.0%	0.0%	0.0%	0.0%	0.0%
13-Jun-2018 (2018-Q2)	3.9%	31.0%	60.0%	5.2%	0.0%	0.0%	0.0%
26-Sep-2018 (2018-Q3)	1.5%	14.0%	39.9%	36.3%	7.9%	0.4%	0.0%
19-Dec-2018 (2018-Q4)	0.8%	8.0%	26.9%	36.4%	21.5%	5.7%	0.7%

In the table above, we're trying something new to help better visualize what the probabilities indicated by the CME Group's FedWatch tool for the likely timing of changes in U.S. interest rates are communicating. Here, the cells that have been highlighted in yellow in each row represent when the odds that the Fed will hike the Federal Funds Rate at the selected date are greater than 50%, where the cell whose probability is shown in boldface font indicates the minimum target range to which they will likely be set. [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 color-coded formatting.]

Outside of Friday's market moving headline, the rest of the news of the week was mostly consistent with generating what we would describe as "typical" levels of noise for the S&P 500 in what was a holiday-shortened week of trading.

Tuesday, 20 February 2018

• U.S. oil prices rise on Cushing draw, hopes of producer cooperation
• Walmart holiday-quarter profit drops, online struggles spook investors - the stock (NYSE: WMT) dropped $10.67/share, or 10.2%, to close at $94.11. Walmart is the 35th largest company by market cap in the S&P 500, accounting for 0.66% of the index.
• Dow, S&P snap winning streak as Walmart weighs

Wednesday, 21 February 2018

• Oil largely steady amid forecast of U.S. crude build, stronger dollar
• Fed policymakers show rising confidence on inflation, economic outlook: minutes
• Fed's Harker sees two U.S. rate hikes this year
• Tight supply, rising prices undercut on U.S. home sales
• Wall Street falls as Fed minutes send bond yields higher

Thursday, 22 February 2018

• Oil prices climb after unexpected drawdown in U.S. crude stocks
• Fed's Kaplan says stronger data could impact rate-hike view
• Fed's Kaplan says three rate hikes in 2018 'reasonable'
• Fed's Quarles says gradual U.S. rate hikes 'appropriate'
• Dow, S&P climb on energy and industrials; Nasdaq falls

Friday, 23 February 2018

• Oil climbs with support from Libyan outage, Saudi comments
• Fed sees rate hikes on track; continued U.S. growth
• Fed's Williams sticks to gradual rate-hike view
• Fed's Williams sees three to four rate hikes in 2018
Stocks rally as Fed eases rate worry, tech climbs

Elsewhere, Barry Ritholtz identified the positives and negatives for the U.S. economy and markets in Week 3 of February 2018, where good news was found in the stock market and the economy at large, and the bad news of the week could mostly be tied to the impact of rising interest rates.

Coming soon, we'll take a look at the volatility in the S&P 500 over the past month to provide some proper historical context to consider it!