Alternative Futures for the S&P 500 in Week 1 of June 2018

The S&P 500 closed up at 2,779.03 to close the week ending on Friday, 8 June 2018. That level is less than 100 points below the all-time high of 2,872.87 that it set back on Friday, 26 January 2018, and also nearly 200 points above the low value of 2,581.00 that it bottomed out at on Monday, 2 April 2018.

And as best as we can tell, with just one week effectively left to go in the second quarter of 2018*, investors are closely focused on the soon-to-end current quarter of 2018-Q2.

With just one week left to go, there are just three main scenarios to consider that will soon define the future trajectory of the S&P 500:

1. Investors may shift their attention to the distant future quarter of 2019-Q1, where they had focused earlier in this quarter, with the result that stock prices will fall below their current level.
2. Investors may shift their attention to the less distant future quarter of 2018-Q4, as we suspect they may be doing, where stock prices would rise above their current level.
3. Investors may split their forward-looking focus between these two future quarters, where the S&P 500 would generally move sideways, but would be subject to considerable volatility until investors have reason to fix their attention on one quarter over the other.

That considerable volatility would be driven by investors shifting their attention between 2018-Q4 and 2019-Q1, where the relatively wide distance between the likely alternative future trajectories that apply for investors focusing on either quarter would be associated with a higher level of volatility in stock prices.

Finally, there's our favorite future possibility to consider, a very low probability situation where a noise event disrupts the market and sends stock prices on a totally different potential trajectory until some semblance of ordinary chaotic order returns. And now you know what kinds of things we have to consider in applying our dividend futures-based model for projecting the future of stock prices!

As for what kind of news might drive a significant shift in the forward-looking focus of investors, the first full week of June 2018 was full of examples of what kind of news doesn't move the needle very much....

Monday, 4 June 2018

• Oil falls 2 percent, U.S. crude hits lowest since early April
• Trump: China soybean tax, Canadian agricultural products trade barriers unacceptable
• With maple syrup tariff, Canada-U.S. trade dispute spills beyond metals
• Tech rally helps Wall Street push higher, Nasdaq has record close

Tuesday, 5 June 2018

• Brent gains after touching one-month low on supply concerns
• Trump to meet trade advisers over $70 billion China offer -sources
• Trump may seek separate trade deals with Canada, Mexico: U.S. adviser
• Nasdaq ends at record close, S&P edges higher on data

Wednesday, 6 June 2018

• Oil prices rise on Venezuelan supply troubles, but U.S. output surges
• Wall Street rises on economic data, easing trade worries

Thursday, 7 June 2018

• Oil gains on Venezuela export cuts, OPEC production levels
• Fed clambers back to positive real rates, now debate is when to stop
• S&P, Nasdaq fall as tech rally loses steam; Dow rises

Friday, 8 June 2018

• Oil prices fall on dip in China demand, surging U.S. output
• Fed, ECB to tighten policy in tandem
• Wall Street rises, investors eye Fed decision, summit fears ebb

The Big Picture's Barry Ritholtz has assembled a list of the positives and negatives that describes the state of the U.S. economy and markets in the first full week of June 2018.

* For our analytical purposes, the expiration of dividend futures contracts on the third Friday of the month ending a calendar quarter effectively marks the end of the quarter. For 2018-Q2, that will happen on Friday, 15 June 2018, after which, the "current quarter" will be described by the futures for 2018-Q3!