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.
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
- Daily signs and portents for the U.S. economy:
- Oil steady as virus infections rise but hopes for vaccine lends support
- When the U.S. sneezes, the world catches a cold. What happens when it has severe COVID-19?
- Bigger stimulus developing in Eurozone, Russia:
- EU needs ambitious financial deal more than fast one, Lagarde says
- EU leaders take "last steps" for recovery deal after days of squabbling
- Italy PM says cautiously optimistic of accord at EU summit
- Russia seen cutting rates by at least 25 basis points on Friday: Reuters poll
- Wall Street closes higher, Nasdaq sets record as potential vaccines show promise
- Tuesday, 21 July 2020
- Daily signs and portents for the U.S. economy:
- Bigger trouble, bailouts ahead in the Eurozone; bigger trouble continues in Japan:
- European banks face more than 400 billion euros in COVID loan losses
- ECB's VP warns about impact of new epidemic wave in the U.S.
- Japan's July factory activity extends declines into third quarter as demand sags: PMI
- Bigger stimulus deal reached in Eurozone:
- EU reaches historic deal on pandemic recovery after fractious summit
- Game changer? How the recovery fund will shake up EU bond markets
- Analysts View - 'The money matters': EU stimulus deal lowers region's risk premium
- Stocks, euro rally on EU's massive recovery fund
- Wednesday, 22 July 2020
- Daily signs and portents for the U.S. economy:
- Oil falls as U.S. posts surprise rise in crude inventories
- U.S. home sales rack up record gain; tight supply, COVID-19 seen slowing momentum
- PPP small business aid saved 2.3 million jobs, study estimates
- Bigger trouble developing in Australia, Russia:
- Australia expects latest virus outbreak to cut third quarter GDP growth by 0.75 pct points: source
- Russia's economy contracted 4.2% in first half 2020: Ifax cites economy minister
- Bigger stimulus under negotiation in the U.S.:
- ECB minion faults EU for not enough stimulus, ECB continues Eurobank bailout:
- EU's pandemic fund 'could have been better', ECB's Lagarde says
- ECB to extend capital relief, dividend ban for banks: sources
- Wall Street ends choppy session higher on mixed earnings, U.S. stimulus debate
- Thursday, 23 July 2020
- Daily signs and portents for the U.S. economy:
- Oil falls on coronavirus demand concerns, weak U.S. jobs numbers
- U.S. weekly jobless claims unexpectedly rise as labor market takes step back
- Unemployment's second wave? Stodgy reopening, virus surge may undercut U.S. jobs
- Draft Republican plan for U.S. coronavirus relief has more direct payments: aide
- Fed minions boost monetary stimulus:
- Bigger trouble developing in Asia, China adds more stimulus:
- China's June diesel exports fall to lowest since September 2018
- China state-owned firms' first half profits down 38.8% year-on-year: ministry
- China's ICBC cuts average loan rate to 4.31% to support economy
- Wall Street closes sharply lower on tech selloff
- Friday, 24 July 2020
- Daily signs and portents for the U.S. economy:
- Oil up on strong economic data; U.S.-China tensions cap gains
- U.S. new home sales shine in June; business activity picks up
- Bigger trouble developing in Mexico, Africa:
- Mexican economy shrinks further in May to darken recovery prospects
- Sub-Saharan Africa GDP to contract 3.1% this year: Reuters poll
- Bigger stimulus not developing in China, despite weak growth:
- China will not use property market as short-term stimulus: vice premier
- China's economy seen growing 2.2% in 2020, weak demand, U.S. tensions cloud outlook: Reuters poll
- Wall Street closes lower as Intel dives, earnings and pandemic weigh
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.