Unexpectedly Intriguing!
July 27, 2020

We wondered if we were going to see any stock market doldrums this summer, and in the last week, they seem to arrived in a week that was short on market moving news, in which the S&P 500 (Index: SPX) closed just 9.1 points below where it did a week earlier.

Uneventful as it was, the week managed to provide enough additional data to allow us to refine our estimates of the value of the amplification factor in the dividend futures-based model we use to anticipate the S&P 500. Based on what we're observing, we think its value shifted to be slightly negative on 14 July 2020, where investors appear to be focused on 2020-Q4 in setting current day stock prices.

Alternative Futures - S&P 500 - 2020Q3 - Standard Model (m=-0.5 from 14 July 2020) - Snapshot on 24 Jul 2020

We have also reached a point where the past volatility of the historic stock prices we use in projecting future prices will cause its projections to be less accurate through the next six weeks. In the alternative futures chart, we are showing a redzone forecast range through that upcoming period, in which we assume investors will sustain their forward looking focus on 2020-Q4. Should the trajectory of the S&P 500 move outside that range, it would potentially indicate investors have shifted their forward-looking focus to a different point of time in the future.

That could also happen if the market experiences a significant noise event, which isn't out of the cards. Especially since stock prices these days seem to be more affected by the changes investors expect for how the Federal Reserve might grow its balance sheet (what changes the amplification factor) than they are by changes in the rate at which expect dividends will grow.

There weren't as many market moving headlines as in the past week as in months of weeks that came before, but here are the ones we found in the week's news stream.

Monday, 20 July 2020
Tuesday, 21 July 2020
Wednesday, 22 July 2020
Thursday, 23 July 2020
Friday, 24 July 2020

Need a bigger picture on the week's events? Barry Ritholtz breaks them down into a succinct summary of positives and negatives over at The Big Picture.

We have a pretty good track record for redzone forecasts, but we don't yet have a lot of confidence in the latest given the exciting new territory the market has entered in the last several months. We'll just have to see how it plays out.

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