Unexpectedly Intriguing!
25 October 2021

Given all the issues that are dominating the news, would you have guessed the S&P 500 (Index: SPX) would reach a new record high?

The index closed at a record high of 4,549.78 on Thursday, 21 October 2021, which puts the trajectory of the index into the upper half of the latest redzone forecast range:

Alternative Futures - S&P 500 - 2021Q3 - Standard Model (m=-2.5 from 16 June 2021) - Snapshot on 22 Oct 2021

Sharp-eyed readers will catch that the trajectory of the range has itself shifted upward, which is a result of the 'dynamic' method we use to set it. When we bridge across periods where the echoes of past volatility in stock prices affect the dividend futures-based model's projections, the past end of the range is fixed while the future end 'floats' with changes in expectations.

For the chart, the rising expectations for the future now means parts of the S&P 500's actual trajectory that were once within the redzone forecast range now fall outside of it. That's visible by design in this period because we set the total width of this forecast range to be plus-or-minus three percent of the historic typical level of volatity for stock prices.

Under typical volatility levels, the trajectory of the index should generally fall well within that statistically-determined range. But as the chart visually confirms, the market is experiencing greater than typical levels of volatility.

For us, what that means is that when we get around to projecting the S&P 500's future trajectory for 2021-Q4, we'll need to generate a new redzone forecast, since today's stock prices will become the base reference points from which we project the future for the index in that period. The echoes of today's volatility will affect the accuracy of the dividend futures-based model's projections a year from now.

The market moving headlines of the week point to several contributing factors for what new information has contributed to improving the outlook for investors. Pay particular interest to the signs and portents for the U.S. economy in the latter half of the week that was:

Monday, 18 October 2021
Tuesday, 19 October 2021
Wednesday, 20 October 2021
Thursday, 21 October 2021
Friday, 22 October 2021

If you haven’t already guessed it by clicking through the headlines, Reuters is a terrific resource for business and markets news, with a higher-than-average signal to noise ratio for picking up on market-moving news items.

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