The level of the S&P 500 (Index: SPX) continues to react to news affecting investor expectations of how the Fed will be setting interest rates in upcoming months. The index rose 1.1% from the close of trading during the previous week to close the week ending 2 December 2022 at 4,071.70.
During the week, evidence supporting the hypothesis that investors are in the process of transitioning their forward-looking attention from the current quarter of 2022-Q4 to the upcoming quarter of 2023-Q1 continued to build. The latest update to the alternative futures chart shows that hypothesis as the new redzone forecast range spanning the month-long period from 22 November through 22 December 2022.
Investors are focused on this period because they are paying very close attention to statements by Federal Reserve officials about how they intend to set the level of the Federal Funds Rate when they meet in December 2022 and during the first quarter of 2023. This period is expected to contain the top for this basic interest rate as the Fed's current series of rate hikes comes to an end, now expected at the one year mark after they began.
The market moving headlines of the week that was emphasizes the outsize role the Fed is having on the trajectory of the U.S. stock market. Pay close attention to the news of 30 November 2022, since this news allowed the S&P 500 to end the month with a bang.
- Monday, 28 November 2022
- Signs and portents for the U.S. economy:
- Fed minions say they want higher rates for longer before any rate cuts:
- Fed has 'a ways to go' on interest rate hikes, Bullard says
- Fed could cut interest rates in 2024, Williams says
- Fed's Barkin sees slower rate hikes, for longer, maybe higher
- Fed's Brainard: Successive supply shocks a challenge for central banks
- Bigger trouble developing in China:
- Central bankers starting to pitch "shallow" recession, apologize for failing to predict their rate hikes:
- NZ faces 'shallow' recession as rates need to rise more - senior central banker
- Australia's top central banker apologises for past rate guidance
- ECB minions see more inflation ahead, won't commit on where, when rate hikes will peak:
- ECB's Lagarde keeps options open on path for rates
- ECB's Lagarde says we haven't reached inflation peak
- Apple, energy shares drag Wall St lower amid China COVID protests
- Tuesday, 29 November 2022
- Signs and portents for the U.S. economy:
- U.S. house annual prices slow again in September
- U.S. Thanksgiving weekend sees record 197 million shoppers -NRF
- U.S. consumer confidence at four-month low; house price inflation slows
- Fed minions leaning toward smaller rate hikes:
- Three Fed bank boards wanted smaller discount rate hike
- Recession may force Fed rate cut in 2023, sending Treasury yields lower -BofA
- Bigger trouble developing in South Korea:
- South Korea November exports set to fall by most in 2-1/2 years - Reuters poll
- Exclusive-South Korea's Yoon urges attention to any 'financial instability' as money market jolted
- Better than expected news in Eurozone:
- S&P 500 seen ending end next year up 6% after choppy first half: Reuters poll
- Wednesday, 30 November 2022
- Signs and portents for the U.S. economy:
- U.S. private payrolls growth slows in November-ADP
- U.S. pending home sales fall 4.6% in October
- Job openings data shows modest progress for Fed's labor market hopes
- Fed minions claim they won't crash economy, say they're ready for smaller rate hikes, but don't want to have to start cutting them anytime soon:
- Fed's Powell: Rate hikes to slow, but adjustment just beginning
- Fed won't crash economy with interest-rate hikes: Powell
- Fed Chair Powell: cutting rates is not something to do soon
- Instant View: Powell says rate hike moderation may come by December
- Fed's Cook says time nearing to increase rates in smaller steps
- Bigger trouble developing in China:
- China's services sector activity falls further in Nov - official PMI
- China factory, services activities slide to 7-month lows on COVID curbs
- BOJ minions starting to notice inflation:
- ECB minions noticing less-than-expected inflation:
- Wall Street ends sharply higher after Powell comments
- Thursday, 1 December 2022
- Signs and portents for the U.S. economy:
- U.S. manufacturing sector contracts in November - ISM
- U.S. construction spending falls in October on single family housing
- U.S. farm incomes seen soaring to new highs on global food, feed demand
- Fed minions want to hold interest rates at high level for longer:
- Bigger trouble developing in Asia:
- China's factory activity shrinks in Nov amid widespread COVID curbs - Caixin PMI
- Japan's factory activity shrinks for first time nearly 2 years -PMI
- South Korea Nov exports fall most in 30 months on slow China demand, semiconductors
- Bigger trouble developing in the Eurozone:
- Bigger trouble developing in North America:
- BOJ minions fearing inflation raise prospect of ending never-ending stimulus:
- ECB minions worried Eurozone banks not doing enough to avoid failing, excited about hiking rates:
- Euro zone banks not facing up to reality of downturn, ECB says
- ECB's Lane says real rates have already risen 'quite a bit'
- Wall St falls after bleak manufacturing data, Salesforce tumbles
- Friday, 2 December 2022
- Signs and portents for the U.S. economy:
- Fed minions say labor market will stay tight, are expected to set Federal Funds Rate at 5% in 2023; discover they caused 2021's surge in reverse repos:
- Fed's Barkin: labor supply likely will remain constrained
- Fed's Evans sees slower rate hike pace, "slightly higher" peak rate
- NY Fed paper ties reverse repo surge to bank regulation change
- Bigger stimulus developing in China:
- Bigger trouble developing in the Eurozone:
- ECB minions worried government stimulus efforts are adding to Eurozone inflation, plan to shrink their balance sheet:
- ECB's Lagarde warns some fiscal policies in Europe could fuel excess demand
- Explainer-ECB to start offloading debt to fight inflation
- ECB must focus on 2% goal after inflation slowdown, says De Guindos
- Wall Street closes modestly lower after jobs report
The CME Group's FedWatch Tool continues to project a half point rate hikes at the Fed's upcoming December (2022-Q4) meeting, but now anticipates quarter point rate hikes at its February and March 2023 (2023-Q1) meetings. The Federal Funds Rate is still projected to peak at a target range of 5.00-5.25%. Looking further forward, the FedWatch tool now anticipates two quarter point rate cuts in 2023, coming in November and December (2023-Q4) as the Fed swings into reverse because of expected recessionary conditions in the U.S. economy.
The Atlanta Fed's GDPNow tool's projection for real GDP growth in 2022-Q4 rose plunged to 2.8% from last week's +4.3% estimate. That plunge shrank the gap between its current projection and the so-called "Blue Chip consensus", which still predicts near zero growth during the current quarter of 2022-Q4.