Unexpectedly Intriguing!
05 July 2022

The S&P 500 (Index: SPX) followed the trajectory associated with investors focusing on 2022-Q3 in the week ending the second quarter of 2022. Unfortunately for investors, that trajectory points downward, so the index ended the week much lower than it began and worse, ended up back in bear market territory.

Not that such an outcome is surprising in the current market environment. If you regularly follow our S&P 500 chaos series, you'll recall the following analysis:

We think investors will, once again, shift their forward-looking attention toward 2022-Q3, because what actions the Fed will take next as it scrambles to get ahead of inflation will hold the focus of investors on this quarter. We've updated the alternative futures chart to add a new redzone forecast range to indicate where stock prices will likely go during the next several weeks, also assuming no deterioration of expected dividends or outbreaks of noise in the market.

In the very short term, that redzone forecast range suggests a higher level for the index, but one that could be relatively short-lived. We peeked ahead at the dividend futures-based model's projections for 2022-Q3, and see that the redzone range continues to drop to roughly where stock prices are today.

Those observations are from 21 June 2022, before any of what we described went on to happen, which is visualized in this chart.

Alternative Futures - S&P 500 - 2022Q2 - Standard Model (m=-2.5 from 16 June 2021) - Snapshot on 1 Jul 2022

Next week, we'll feature a first look at the dividend futures-based model's projections for 2022-Q3, which will begin with investors focusing upon this quarter.

Until then, here's our recap of the past week's market moving headlines, in which we find the growing potential for recession is commanding the attention of investors.

Monday, 27 June 2022
Tuesday, 28 June 2022
Wednesday, 29 June 2022
Thursday, 30 June 2022
Friday, 1 July 2022

The CME Group's FedWatch Tool is still projecting half point rate hikes for both July and September 2022 (2022-Q3) with quarter point rate hikes at six-week intervals after that through 2022-Q4 and 2023-Q1, topping out in a range between 3.50 and 3.75% in February 2023. After that, the tool now projects quarter point rate cuts in both March (2023-Q1) and May (2022-Q2), anticipating a recession requiring that action.

Speaking of which, the Atlanta Fed's GDPNow tool now projects real GDP will shrink by 2.1% for the just ended quarter of 2022-Q2, falling that much from last week's zero growth reading. U.S. Treasury Secretary Janet Yellen's "two quarters of negative growth as a good rule of thumb to indicate a recession" may have been met in the first half of 2022.

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