Unexpectedly Intriguing!
June 25, 2018

For all the news headlines about trade wars and tit-for-tat retaliatory tariffs, none of that trade-related news seems to be doing much to move the needle of the stock market.

We're not the only market observers to recognize that with little exception, the stream of trade-related news headlines isn't contributing much more than noise to the daily action of stock prices. Here's one such take:

Do you really think the treat of a trade war is causing U.S. stocks to stumble? That's what the headline writers would have you believe, but I'm not buying it.

It strikes me as though mounting trade tensions have become commentators' latest whipping boy, conveniently available as the after-the-fact explanation for whatever the market is already doing.

When the U.S. market tumbes, as it did Monday and again on Tuesday, when the Dow Jones Industrial Average fell by almost 300 points, increasing trade war worries are blamed. If the market had risen instead, any reports of easing trade tensions will undoubtedly receive credit.

And here's another similar take:

The escalating rounds of tariffs between the United States and China is an interesting point of economic debate. However, from the perspective of the interest rate markets, it appears to be one of those subjects that generates a great deal of economist commentary, but with limited market impact. This view is arguably complacent; whether it is too complacent is left for the reader to judge.

And there's more here. But let's go back to that first view that we quoted - would stock prices be behaving the way they are in the absence of such dueling trade headlines?

We may be able to answer that question. Last week, we observed that investors seemed to be fixing their forward-looking sights on the distant future quarter of 2019-Q1 in setting today's stock prices. Well, there's a particular trajectory on our S&P 500 spaghetti forecasting chart that's specifically projects the likely trajectory that the S&P 500 would follow within a relatively narrow range of error for that particular scenario, which we've projected prior to any news headlines being published for what would be the week ahead.

In the following animated chart, we've taken our chart from last week and are alternating it with the updated version from this week. Please click through to our site to see the animated version if you're reading this article on a site that republishes our RSS news feed.

Animation: Alternative Futures - S&P 500 - 2018Q2 - Standard Model - Snapshots on 15 Jun 2018 and 22 Jun 2018

What you see here is that if investors are indeed focusing on the distant future quarter of 2019-Q1 and the current expectations associated with it, the S&P 500 is behaving in accordance with that outlook, with U.S. stock prices falling within the typical range of noise that we would expect in that situation. As we noted two weeks ago, investors coming to focus upon 2019-Q1 would be associated with a downward movement in the S&P 500.

So without any advance knowledge of what the third week of June 2018's potentially market-moving news headlines might be, much less any trade war-related headlines, our dividend futures-based model of how stock prices work managed to account for the movement of the S&P 500 during the week. Before the week began.

Speaking of which, here are the headlines that we flagged as noteworthy during Week 3 of June 2018.

Monday, 18 June 2018
Tuesday, 19 June 2018
Wednesday, 20 June 2018
Thursday, 21 June 2018
Friday, 22 June 2018

Need a bigger picture of the third week of June 2018's economics and markets news, but don't want to slog through a lot of noise? Check out Barry Ritholtz' summary of the week's positives and negatives!

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