Unexpectedly Intriguing!
18 April 2022

The S&P 500 (Index: SPX) showed it was close to the edge during the Good Friday holiday-shortened trading week. In fact, the latest weekly update to the alternative futures spaghetti forecast chart reveals it still is on the edge of the redzone forecast range:

Alternative Futures - S&P 500 - 2022Q2 - Standard Model (m=-2.5 from 16 June 2021) - Snapshot on 15 Apr 2022

The current redzone forecast range is based on the assumption investors would be focusing on 2022-Q3 during the weeks it runs, indicating where we expect the actual trajectory of the S&P 500 will range while the accuracy of the dividend futures-based model's forecasts are affected by the echo of the past volatility of historic stock prices it uses as the base reference points to project the future for the index. As you can see, it's running right along the lower edge of that range.

That's because investors had a reason to draw in their forward-looking focus toward the current quarter of 2022-Q2 during the past week. That's because speculation the Fed's next rate hike in May 2022 could be as large as 0.75% took hold early in the week ahead of the latest report on the Consumer Price Index.

As the week played out, the level of inflation proved to be a bit lower than investors were speculating, which meant they continued focusing their attention on 2022-Q3. But the level of the S&P 500 remains at the edge of the lower end of the range we would expect the index to be in that situation.

What would be the risk if investors fully shifted their attention to 2022-Q2 in setting current day stock prices? The dividend futures-based model indicates such a shift would be accompanied by significant drop in stock prices, around 3-7% below their current depressed level. And that drop could happen without any change in the expectations for the S&P 500's dividends and earnings.

And that brings us to 2022-Q2's earnings season, which is just getting underway. Now that we're past the March 2022 inflation report and still ahead of when the Federal Reserve's Open Market Committee will meet in May 2022, the random onset of new information about the business outlook for S&P 500 firms has the most potential for prompting investors to shift their attention back into the second quarter of 2022. At their current level, it wouldn't take much to make that happen, which is why we're describing the S&P 500 as being on the edge.

Speaking of the random onset of new information, here's our sumary of market-moving news headlines that investors absorbed during the past week.

Monday, 11 April 2022
Tuesday, 12 April 2022
Wednesday, 13 April 2022
Thursday, 14 April 2022

The CME Group's FedWatch Tool is still projecting Fed's next moves will be three consecutive half point rate hikes in May, June, and July (the first two in 2022-Q2, the third in 2022-Q3), two quarter point rate hike in September (2022-Q3) and November (2022-Q4), followed by a half point rate to close out 2022 in December (2022-Q4).

Meanwhile, the so-called "Blue Chip Consensus" forecast for 2022-Q1's GDP has converged with the Atlanta Fed's GDPNow tool's latest estimate of real GDP growth, which is unchanged from last week's 1.1%.

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