There's not much new in the S&P 500 (Index: SPX) this week, so it looks like the index kept drifting upward to new highs on its momentum.
Here's how that looks on the latest update to the alternative futures chart:
We're also reaching the point where we can test one of the assumptions behind the redzone forecast shown on the chart. When we first locked it in several weeks ago, we assumed investors would begin shifting their forward-looking focus from 2021-Q2 out to the more distant future of 2021-Q4 during April 2021.
That assumption is looking really iffy right now. Instead of starting to shift their forward time horizon to the more distant future as we has assumed would happen this month, investors would appear to have strongly locked into their focus on 2021-Q2.
Given the small differences in the expectations for the growth rate of dividends in 2021-Q2 and 2020-Q4, we see that the redzone forecast range has so far captured most of the trajectory for the S&P 500. But that trajectory has also progressively run to the low side of the projected range. The actual trajectory is much more consistent with what would be expected if investors were maintaining a strong focus on 2021-Q2, so the question becomes why?
We think the ongoing strong focus on 2021-Q2 may be related to the surge of inflation now hitting the U.S. economy, which is raising questions of how long it will be before the Fed has to react to it. That concern is pulling investors forward-looking attention in toward the near term.
The growing concern of rising inflation and the Fed's likely response to it is reflected in the week's market-moving news headlines, where the first step in that response looks like it will involve tapering the Fed's purchases of U.S. government-issued bonds.
- Monday, 12 April 2021
- Signs and portents for the U.S. economy:
- U.S. budget deficit hits record high for March as aid swells outlays
- Oil rises on U.S. vaccine rollout, Middle East tension
- Fed minions
- Fed's Powell: U.S. economy at an 'inflection point' - CBS '60 Minutes'
- Fed's Rosengren says U.S. economy should see significant rebound this year
- Bigger inflation developing in Japan, COVID lockdown restrictions in India:
- Japan wholesale prices rise for first time in more than a year, stoked by commodities surge
- Businesses in India's richest state choke under new COVID-19 curbs
- Positive recovery signs seen in China exports to world, UK shops reopen:
- China's exports, imports seen staying buoyant in March: Reuters poll
- Shopper numbers jump 218% as England reopens economy
- Wall Street ends lower as investors await earnings, inflation data
- Tuesday, 13 April 2021
- Signs and portents for the U.S. economy:
- U.S. consumer prices post biggest gain in 8-1/2 years as economy reopens
- Oil rises after robust China data but J&J vaccine pause weighs
- Fed minion says inflation is under control, Fed to sit on hands:
- BOJ minion big on weak yen:
- Tech stocks push S&P 500 to record close, buoy Nasdaq
- Wednesday, 14 April 2021
- Daily signs and portents for the U.S. economy:
- Fed minions seem a lot more worried about inflation than they previously claimed to be, expect strong growth but slower jobs recovery:
- Powell: QE taper likely 'well before' interest rate increase
- New York Fed's Williams: Fed has tools to deal with high inflation
- Clarida: If inflation expectations 'drift up persistently,' Fed would need to respond
- U.S. economy gaining momentum as consumers ditch the winter blues, Fed says - amazing what lifting lockdowns can do for growth!
- Bigger stimulus developing in Eurozone, Canada:
- European Union unveils recovery fund financing plan
- EU to borrow around 150 billion euros annually for recovery fund
- ECB will act on unwarranted rise in borrowing costs, its VP says
- Canada to go big on budget spending as pandemic lingers, election looms
- Wall Street ends mixed despite bumper bank earnings
- Thursday, 15 April 2021
- Daily signs and portents for the U.S. economy:
- U.S. business inventories rise solidly in February
- U.S. retail sales post largest gain in 10 months; weekly jobless claims fall
- Fed minions say not time yet to start pulling back on U.S. money printing, want to stop being so racist:
- Fed's Daly says not time for taper, still far from goals
- Fed's Mester not too concerned about inflation getting too high
- Fed's Mester says U.S. economy could grow by 6% or more in 2021
- Economy far from central bank's goals but outlook brightening, Fed's Mester says
- Bostic: U.S. should study ways to offset wealth impact of systemic racism
- Bigger trouble where COVID still reigns:
- Peru economy contracts 4.18% in February amid COVID-19 second wave
- German economy probably shrank 1.8% in first quarter due to lockdown, institutes say
- Slow vaccine rollouts biggest risk to euro zone economy
- BOJ's Kuroda warns of lingering pandemic pain for economy
- S&P 500, Dow hit record highs on upbeat earnings, strong retail sales
- Friday, 16 April 2021
- Daily signs and portents for the U.S. economy:
- Pandemic destroyed fewer U.S. businesses than feared, Fed study shows
- U.S. housing starts near 15-year high; consumer sentiment rises moderately
- Oil nudges lower but set for weekly gain on demand recovery hopes
- Fed minions more worried about inflation than they've been letting on:
- Fed's Waller says U.S. economy 'ready to rip' but inflation will level off
- Fed's Kaplan wants to reduce easing at 'earliest opportunity'
- Positive growth signs in China, also signs of slowing:
- China's GDP jumps record 18.3% but post-COVID recovery seen losing steam
- Factbox: Has China's $16 trillion economy fully recovered?
- Wall Street ends week positively; S&P 500, Dow hit record highs
Meanwhile, the debonair Barry Ritholtz listed seven positives and five negatives he found in the past week's markets and economics news.
On a final note, while investors may now be focusing on 2021-Q2, they can only do so until the quarter runs out. No matter what, investors will have to shift their forward-looking focus to some other point of time in the future and that will have to happen sometime before the third Friday of June 2021 when the dividend futures contracts for 2021-Q2 expire. Since the differences in the changes expected for the year over year growth rate of the index' dividends per share are relatively small, it's unlikely we'll see a large scale Lévy flight event when that happens.
Unless, of course, something else changes to affect the expectations for the future or the Fed's willingness to stay on its current policy path.