On 20 September 2018, the S&P 500 (Index: SPX) reached the highest point it would in 2018 with a record high closing value of 2,930.75. It was a record that held for the next 215 days, until the S&P 500 finally broke above that level to close at a new record high of 2,933.68 on 23 April 2019.
That was the first record-breaking close for the S&P 500 index in 2019. Through 20 December 2019, when the S&P 500 reached its latest record high close of 3,221.22, the S&P 500 has recorded 31 more, for a total of 32 record closing highs for the index during the year, with another week to go to potentially add to that total!
For our dividend futures-based model for projecting the future for the S&P 500, we find the index falls within the latest redzone forecast range we added to the alternate futures spaghetti forecast chart several weeks ago to compensate for the echo effect from the past volatility of historic stock prices the model uses in its projections.
Right now, we think we may be seeing a transition in how far investors are looking into the future, shifting their attention from 2020-Q3 where it has been over the last several weeks back toward 2020-Q1, which our model indicates would set the level of the S&P 500 almost identically.
The reason why we're thinking that may be the case is because investors appear to now be giving less than even odds of the Federal Reserve changing short term interest rates in the U.S. during 2020. Here is a snapshot of the probabilities form the timing and magnitude of changes in the Fed might alter the Federal Funds Rate from the CME Group's FedWatch Tool, which shows less than 50% odds of the Fed adjusting interest rates at all but its very last meeting in 2020,which it drifts slightly over 50%.
That change in expectations since just last week has been shaped in part by statements by several Fed officials indicating they are not anticipating any additional rate cuts in 2020. In 2019, investors were often reluctant to believe these kinds of statements, however the Fed's actions to flood U.S. money markets with cash to ensure they remain liquid this past week may have finally given Fed officials more credibility for those assertions.
At least, that's our take from the flow of new information that investors digested during the third week of December 2019. A sampling of some of the more significant headlines that caught our attention during the week that was provides the context in which we're assessing how investors are viewing the market.
- Monday, 16 December 2019
- Oil rises on U.S.-China trade hopes, still below three-month highs
- Bigger trouble developing in the Eurozone, Japan, China:
- German economy stagnating despite signs of industrial rebound: ministry
- Euro zone business growth stayed weak in December: flash PMIs
- China November home price growth slowest in two years; property investment at one-year low
- Japan December factory activity shrinks for eighth month, output slump worsens: flash PMI
- Negative interest rates coming to an end in the Eurozone:
- Wall Street sets records anew on trade deal boost
- Wrong! Three more significant things happened on the way to the day's rally:
- Expectations the Fed will to cut interest rates by up to a half point in 2020-Q3 peaked, fixing investors' attention on that distant future quarter.
- The Fed began pouring much more money into U.S. money markets on 16 December 2019 to try to keep the repo market's liquidity crisis from deepening.
- Expectations for future dividends rose.
- Tuesday, 17 December 2019
- Oil rises further above $65 on trade hopes, supply cuts
- Bigger trouble developing in Japan: Japan's exports shrink for 12th month as U.S., China demand falls
- Trump repeats call for Fed to lower interest rates, boost quantitative easing
- More Fed officials see little need to change interest rates anytime soon
- Wall Street extends record-setting climb on upbeat economic data
- Wednesday, 18 December 2019
- Oil steadies on U.S. crude inventories fall, demand hopes
- Bigger stimulus developing in China: China central bank adds more liquidity, cuts 14-day reverse repo rate
- U.S. economy on good path with rates on hold, Fed policymakers say
- NY Fed's Williams says economy, monetary policy in a good place: CNBC
- Fed's Evans says he is comfortable with one rate hike in 2021, 2022
- Wall Street pauses record-setting rally as FedEx shares tumble
- Thursday, 19 December 2019
- Oil reaches three-month highs, supported by low U.S. inventories, trade progress
- Biggest phony obstacle to U.S.-Mexico-Canada trade deal overcome: U.S. House passes new North American trade deal, Senate timing unclear
- Making 'Phase 1' U.S.-China trade deal official: U.S.-China to sign 'Phase one' trade pact in early January: Mnuchin
- Bigger trouble developing in China: China's economy may face greater downward pressure in 2020: premier
- Bigger stimulus developing in China: China keeps LPR lending rate steady, but more easing expected
- Record-setting rally resumes as Mnuchin says trade deal to be signed
- Friday, 20 December 2019
- Oil prices down but log third weekly rise on trade hopes
- 'Phase 1' trade deal aftermath: China can fulfill $40 billion U.S. farm purchase pledge: consultancy
- Bigger trouble developing in the Eurozone: German economy likely to contract in fourth quarter, DIW says
- Bigger stimulus developing in China: China to boost loan support to manufacturers, small bank reforms: regulator
- S&P 500 posts biggest weekly percent gain since September amid data, trade optimism
Elsewhere, Barry Ritholtz identified seven positives and seven negatives he found in the week's economics and market-related news.
This is the last edition of our S&P 500 Chaos series for 2019, as the next edition won't arrive until 6 January 2020. Between then and now, Political Calculations will close the year with our annual "Biggest Math Story Of the Year" post sometime on Christmas Eve, which will have to carry you through to when we return with the latest update to our income tax withholding tool to officially begin 2020.
Until then, have a Merry Christmas and a Happy New Year!