Unexpectedly Intriguing!
07 March 2021

How far forward in time are investors looking in setting current day stock prices?

If you can answer that question, you're well on your way to understanding why stock prices are behaving as they have been.

For example, the specter of rising interest rates has rattled the S&P 500 (Index: SPX) during the past two weeks. So much so that the bond market's latest 'tantrum' greatly increased the prospects of the Federal Reserve taking action sooner rather than later to ensure the bond market has sufficient liquidity and to bring rates under greater control.

We see these dynamics in the time horizon for investors pulling inward to the current quarter of 2021-Q1 in the alternative futures chart's latest update. That move comes after investors have generally fixed their attention on 2021-Q2 since late January 2021, with some brief glances at the more distant future quarter of 2021-Q4 in mid-February 2021.

Since expectations for the change in the year-over-year growth rate of dividends in 2021-Q1 are less than those for 2021-Q2, investors shifting their focus toward 2021-Q1 would coincide with falling stock prices. As the chart shows, the trajectory of the S&P 500 came close to breaking below the redzone forecast range shown on the alternative futures chart on Thursday, 4 March 2021, but rebounded to stay within it on Friday, 5 March 2021.

For now, that means the assumption built into the redzone forecast range that investors would maintain their forward looking focus on 2021-Q2 still holds. However, we're getting a taste of the volatility that results from investors shifting their forward time horizon. That volatility would be a lot bigger if investors were to fully shift their attention to 2021-Q1, but the events of the past week were such they only shifted a portion of their attention to that possibility, and so, we just got a small taste of that potential.

Speaking of the events of the past week, here's our list of the more notable items based on our assessment of their market-moving potential.

Monday, 1 March 2021
Tuesday, 2 March 2021
Wednesday, 3 March 2021
Thursday, 4 March 2021
Friday, 5 March 2021

Elsewhere, The Big Picture's Barry Ritholtz scans the past week's markets and economics news and sets out the positives and negatives he found!

In his succinct summary, Barry observes the NASDAQ Composite stock index (Index: COMP) is now down for the year. The current bond market tantrum is hitting tech stocks much harder than others, which given its composition, means the Nasdaq has taken the most damage from the tantrum among the major U.S. stock market indices. The reason for that may be found in the hedging strategies of bond investors, who had been plowing money into 2020's high-flying tech stocks to offset the risk of losses from rising rates in bonds during the coronavirus recession. With interest rates now rising, they are cashing in their profits in these stocks to offset their losses in bonds, as they sell tech stocks into a stock market that's no longer propped up by their demand for tech stocks.

The S&P 500 has been affected by this activity because tech stocks have grown to claim a significant weighting within the index. It has been affected to a lesser extent than the Nasdaq because of its greater diversification.

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