Unexpectedly Intriguing!
06 September 2022

The S&P 500 (Index: SPX) moved back toward bear territory in the trading week ending on 2 September 2022. Geopolitics, particularly those emanating from the Eurozone, played an outsize role in sending stock prices to their lowest level in weeks.

The biggest reversal came on Friday, 2 September 2022, when the index swung from being up as high as 1.3% in the morning to instead close down by 1.2%. The major factor driving that development was Vladimir Putin's announcement that Russia would shut down gas pipelines going to the European Union indefinitely. The action will likely drive the Eurozone fully into recession.

And if not that, the higher interest rates the minions of the European Central Bank are considering to combat the inflation caused in good part by having the continent's Russian-supply of oil cut off may also do the job. The Eurozone doesn't lack for bad options and its problems appear are bleeding over into the U.S. stock market.

Alternative Futures - S&P 500 - 2022Q3 - Standard Model (m=-2.5 from 16 June 2021) - Snapshot on 2 Sep 2022

If not for the geopolitical noise event, we think the S&P 500 would be tracking more closely to the alternative trajectory associated with investors focusing on 2022-Q3, which is where they had clearly set their focus as early as last week. At least, until the deep hole the Eurozone is in got deeper. The market moving headlines of the week that was capture those developments along with the U.S.-based market drivers that primarily influence the U.S-based index.

Monday, 29 August 2022
Tuesday, 30 August 2022
Wednesday, 31 August 2022
Thursday, 1 September 2022
Friday, 2 September 2022

The CME Group's FedWatch Tool still projects a three-quarter point rate hike in September (2022-Q3), but now forecasts that will be followed by a series of quarter point rate hikes that will top out in the target range of 3.75-4.00% in February 2023.

Meanwhile, the Atlanta Fed's GDPNow tool's forecast for real GDP growth in 2022-Q3 jumped from 1.6 to 2.6% over the past week.

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