Unexpectedly Intriguing!
August 31, 2020

Say what you might about the narrow breadth of the rally in the S&P 500 (Index: SPX), there's no denying that its carving out record highs on a daily basis.

After holding below the 3,400 level for no apparent reason in the preceding week, the index broke through and, five trading days later, has broken through the 3,500 threshold. More remarkably, the trajectory of the S&P 500 falls well within the redzone forecast range we added to the alternative futures chart several weeks ago.

Alternative Futures - S&P 500 - 2020Q3 - Standard Model (m=-0.5 from 14 July 2020) - Snapshot on 28 Aug 2020

The big news of the week that was came from the Fed's annual retreat in Jackson Hole, Wyoming, where Jerome Powell confirmed the Federal Reserve's inflation target would no longer be a ceiling, but instead be an average. Which is to say the Fed will tolerate inflation running higher than its official 2.0% target for sustained periods of time going forward.

That tolerance means the Fed will leave the Federal Funds Rate within its zero-range bound for the indefinite future. For investors, that equates to a relatively expansionary monetary policy compared to the Fed's previous framework. But not more expansionary than what they've been expecting since mid-July 2020, which is why the trajectory of the S&P 500 continues to track along with the redzone forecast.

There really wasn't much else in the way of market-moving news in the past week, where we scraped the following headlines from the week's newstream.

Monday, 24 August 2020
Tuesday, 25 August 2020
Wednesday, 26 August 2020
Thursday, 27 August 2020
Friday, 28 August 2020

Those were what we thought the market moving headlines of the past week were, but other stuff happened too. Check out Barry Ritholtz' succinct summary of positives and negatives he found in the rest of the week's economics and markets news!


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