Unexpectedly Intriguing!
August 10, 2020

The S&P 500 (Index: SPX) continued to track upward in the first week of August 2020, closing the week at 3,351.28. That's less than 35 points from the index' record high of 3,386.15 recorded back on 19 February 2020, just before the market melted down with the arrival of the coronavirus pandemic in the United States.

That outcome is also largely as expected according to the redzone forecast indicated in the following chart, which assumes that investors are largely focusing on 2020-Q4 and that the Federal Reserve will maintain an expansionary monetary policy into the indefinite future....

Alternative Futures - S&P 500 - 2020Q3 - Standard Model (m=-0.5 from 14 July 2020) - Snapshot on 7 Aug 2020

Sharp eyed readers will note that the upward slope of the redzone forecast has steepened over the last two weeks. We believe that's primarily attributable to the Fed's commitment to continue providing support for the economy, which has slowed since mid-June with the delayed first wave of coronavirus cases in many states that had previously avoided significant numbers of cases. Several Fed officials indicated their concern over that developing situation during the past week, where they also indicated they expect to continue the measures they've launched well into 2021. For investors, their statements are setting the expectation the Fed will continue their expansionary policies throughout the reasonably foreseeable future.

For the S&P 500, that support is benefiting a limited number of firms whose businesses are relatively well positioned to grow in the current economic climate in the environment created by the Fed's policies. In today's environment, that's enough to put the index onto a trajectory that will send the S&P 500 tracking toward record territory in the near future.

Not that there won't be any bumps on the road ahead, but that's something that will be determined by the random onset of new information. Speaking of which, here are the market-moving headlines that caught our attention during the week that was.

Monday, 3 August 2020
Tuesday, 4 August 2020
Wednesday, 5 August 2020
Thursday, 6 August 2020
Friday, 7 August 2020

Looking for more news? Barry Ritholtz' list of positives and negatives he found in the week's economics and markets news is available over at The Big Picture.


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