Unexpectedly Intriguing!
24 February 2020

Coronavirus epidemic-related news continued to dominate the headlines most relevant for S&P 500 (Index: SPX) in the third week of February 2020, sending the index up to a new record high of 3,386.15 on Wednesday on expectations of a much bigger economic stimulus out of China, before also sending stock prices downward to close the week 1.4% lower as the virus' impact to global supply chains started to draw attention.

And yet, the S&P 500 continued to behave predictably, with its trajectory following the path defined by a dividend futures-based model assuming investors are focusing on 2020-Q4 in setting current day stock prices.

Alternative Futures - S&P 500 - 2020Q1 - Standard Model - Snapshot on 22 Feb 2020

The reason we believe investors are focusing on the distant future quarter of 2020-Q4 is because that's when investors are increasingly betting the U.S. Federal Reserve will be compelled to cut interest rates by a quarter point for a second time in 2020 to stimulate economic growth, following an already expected quarter point rate cut in 2020-Q3. The latest rate change probabilities indicated by the CME Group's FedWatch tool confirm that growing expectation:

CME Group FedWatch Tool Probabilities of Federal Funds Rate Changing at Future FOMC Meeting Dates, Snapshot on 21 February 2020

That doesn't mean that Fed officials are happy about that situation, where many are clinging to the hope they can avoid additional rate cuts. And as you'll see among the market-moving headlines of the past week below, at least one Fed official is counting on China's coronavirus epidemic dissipating to justify avoiding additional rate cuts.

Tuesday, 18 February 2020
Wednesday, 19 February 2020
Thursday, 20 February 2020
Friday, 21 February 2020

Meanwhile, if you're looking for more context for what else was going on in the Presidents Day holiday-shortened week, Barry Ritholtz lists the positives and negatives he found in the past week's economics and market-related news - we like how he framed the week's Number 1 negative!

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