"Potential regime change" is how we've previously described the situation developing in U.S. markets, where in the last week, we got even more, as both the Federal Reserve and U.S. Treasury have moved to underwrite the U.S. economy, and by extension, the S&P 500 (Index: SPX). So much so that we can probably drop the word "potential" from that description.
Do check out ZeroHedge for its overview of all the changes that have taken place since the close of trading on 20 March 2020, along with what the Fed did before going on its Easter weekend holiday in the coronavirus pandemic-stricken world.
For the parts of the markets to which we pay the most attention, we find that dividend futures continued to recover, with expectations for the S&P 500's quarterly dividends per share for the rest of 2020 rebounding from their recent lows.
At the same time, the S&P 500 continued its bear market rally, rising particularly on Wednesday, 8 April 2020 actions as some positive news related to improvements in the coronavirus outbreak in the U.S. was accompanied with investor speculation on the Fed and U.S. Treasury's coming actions. Those combined actions were delivered on Thursday, 9 April 2020, which boosted stock prices further.
In the alternative futures chart, we're showing several different values for the amplification factor m from the dividend futures-based model, which has effectively gone from being a constant to a variable in the last few weeks, which potentially provides a means of quantifying the regime change taking place in the stock market.
In case you were wondering what was going on with the CME Group's FedWatch Tool, as of 9 April 2020, it was projecting the Federal Funds Rate to be in the Fed's zero-bound range (between 0% and 0.25%) through 17 March 2021. Meanwhile, here are the major market moving headlines we noted during the Good Friday-holiday shortened trading week, where the week's biggest news came on Thursday, 9 April 2020.
- Monday, 6 April 2020
- Oil prices rising, falling with Saudi-Russia oil price war negotiations:
- Oil falls after Saudi Arabia, Russia delay meeting, Cushing stockpiles soar
- OPEC and allies likely to cut production if U.S. joins cuts: sources
- Trump open to big oil tariffs, but doesn't expect to need them
- Bigger stimulus proving difficult to deliver. Perhaps irreversible:
- U.S. government platform for small business relief claims crashes: banking sources
- Canada, U.S. farms face crop losses due to foreign worker delays
- No turning back after central bankers' 'seismic' stimulus shift
- Bigger stimulus still developing in the U.S.
- Fed says it will provide financing against new U.S. 'payroll protection' loans
- New York Fed opens registration for commercial paper funding facility
- Federal Reserve lowers community bank leverage ratio
- Even bigger stimulus developing in Japan:
- Wall Street soars on hopes of slowing coronavirus deaths
- Tuesday, 7 April 2020
- Oil drops on growing crude glut, doubts over output cuts
- Bigger stimulus developing in the U.S., proving difficult to deliver:
- Trump administration seeks $250 billion more in aid for small U.S. businesses: Mnuchin
- White House to hold call with banks as hundreds struggle to access small business loans
- Former, current Fed minions see gloom, hold U.S. consumers responsible for recovery:
- Former Fed chief Bernanke sees bad year, no quick recovery
- MEDIA-Fed's Kaplan says consumer response to 'Body Blow' will determine pace of U.S. recovery - WSJ
- Wall Street ends lower after volatile session
- Wednesday, 8 April 2020
- Oil holds near $32 ahead of OPEC-led talks on output cuts
- Bigger trouble developing all over:
- France's central bank estimates first-quarter GDP shrunk 6% from previous quarter
- German economy likely shrank by record 9.8% in second quarter due to coronavirus, institutes say
- No rush for bigger stimulus in Eurozone, China stimulus running out of options:
- Euro zone talks on coronavirus econ support package suspended until Thursday
- Germany: EU ministers nearly agreed on package, hope we do before Easter
- Spain warns EU future at risk over financial response to coronavirus
- Irresponsible of governments to leave ECB alone in virus fight: Kazaks
- Price of inaction: European shares retreat as coronavirus crisis deepens
- Exclusive: China's central bank to step up easing, won't borrow Fed playbook - sources
- Fed minions having concerns for state of economy:
- Readout of Fed's March meetings to capture a frenzied policy response
- Coming next from the Fed: How much for Main Street?
- Fed's Evans says he hopes for recovery to start in second half
- Fed's Barkin: coronavirus blow to U.S. economy will be deep
- Equities climb on hopes pandemic is peaking
- Actually more like rising on a stock squeeze involving very thin volumes, which takes very little to move stock prices.
- Thursday, 9 April 2020
- Oil slumps, investors say OPEC supply cuts won't be enough
- Federal Reserve/U.S. Treasury commits to bigger relief:
- Fed rolls out $2.3 trillion to backstop 'Main Street,' local governments
- Fed will continue to act 'forcefully, proactively and aggressively,' Powell says
- U.S. small business rescue program gets capital and liquidity clarity, brings fintechs onboard
- Junk bond prices rally after Fed offers lifeline to riskier credits
- Fed studying if new facility for small business loans might be opened to non-bank lenders
- ECB minions reluctant to provide relief to EU economies:
- Plans taking shape for restarting closed businesses in U.S.:
- U.S. economy should be able to reopen on 'rolling basis': White House adviser Kudlow
- White House to announce economic coronavirus task force soon, senior administration official says
- Mnuchin says U.S. economy could open in May, defying experts
- Automakers push to reopen plants with testing and lots of masks
- Wall Street rises on latest Fed rescue program
What were the positives and negatives in the past week's economics and market-related news? Follow that link for Barry Ritholtz' own succinct summary of the week's notable events.
If you're reading this article on a site that republishes our RSS news feed, please follow this link to check the original article at our site for updates. While the market's volatility remains elevated, we'll continue appending our regular weekly contribution to our S&P 500 chaos series with new analysis as the market continues to be in flux.
A New Oil Deal
Update 13 April 2020, 9:30 PM Eastern: The good news today was the deal reached among oil producing nations to cut production. The bad news is that investors are now turning their focus to earnings season, which will be when many companies reveal how they affect the coronavirus pandemic will affect their outlooks.
You could see part of that gloom start to build in dividend futures, which though the outlook for 2020-Q2 improved, meaning investors are expecting smaller dividend reductions in this quarter, the dividend futures for more distant quarters gave back some of last week's gains. At the same time, the S&P 500 (Index: SPX) shared some of that gloomier outlook, declining 1% to close at 2,761.63.
The next several weeks could really weigh on the S&P 500.
The Fed Continues Firing Bazookas
Update 14 April 2020, 5:00 PM Eastern: The biggest story of the day was the Fed's launch of a new liquidity backstop for commercial paper (a.k.a. "emergency loans for cash-strapped businesses"), which combined with an improving outlook for the coronavirus pandemic to boost the S&P 500 (Index: SPX) by 3.06%, raising it to 2,846.06.
And yet, there was little impact on dividend futures, where we're likely snapping the picture for 14 April 2020 a little too early.
What explains the current trajectory of stock prices? Japan's Masa Capital provides the answer with an inappropriate (yet SFW) anime meme.
A Negative Amplification Factor?
Update 15 April 2020, 5:30 PM Eastern: We're continuing to be amazed at what's going on with the dividend futures-based model's amplification factor, m, where after having effectively been a constant for over a decade, its apparent value has changed dramatically with the Federal Reserves' interventions to provide liquidity, where it may now even be negative.
At least, that's what it takes to get the dividend futures-based model to match what the S&P 500 is actually doing, which you can see in the alternative futures chart below, which shows very close agreement for the S&P 500 (Index: SPX) having dropped by 2.2% to cose at 2,783.36. Since dividend futures are looking flat to very slightly improved, we'll skip showing that chart today.
The main story affecting the outlook of investors today is the picture being painted by a slew of negative earnings and economic reports for how the political reaction to the coronavirus pandemic by state and local government leaders to shut down as much commerce as possible is monkeyhammering jobs.
The apparently negative amplification factor the Fed has generated through its policies is providing a quite a contrast with what's going on in the rest of the U.S. economy, but we wonder how long that might be sustained. What hath the Fed wrought and at what cost?
A Day Of Relative Calm
Update 16 April 2020, 5:30 PM Eastern: Not much of note in today's news, hence little change in both dividend futures and the S&P 500 (Index: SPX), which rose just 0.6% to close at 2,799.55. Here are the latest updates to the dividend futures chart and the alternative futures chart:
Reviewing today's news headlines, it was mostly a day when people were trying to figure out what they're going to do next, peppered by indications of how hard the economy is being hit by all the government-ordered lockdowns. We'll recap whatever happens on Friday in our regular Monday posting....