Unexpectedly Intriguing!
20 March 2023
Down Market by Maxim Hopman via Unsplash - https://unsplash.com/photos/fiXLQXAhCfk

The S&P 500 (Index: SPX) continued to be pulled lower during the trading week ending on Friday, 17 March 2023.

The index closed out the week at 3916.64, some 18.3% below its all-time record high from 3 January 2022. It is now within close range of the 20% below-peak level that commonly defines the boundary of bear territory for the U.S. stock market.

A series of news events related to bank failures, bailout actions, and potential impending failures prompted the fall in stock prices. Investors are on edge waiting for the proverbial next shoes to drop. The latest update alternative futures chart shows the level of stock prices running below the redzone forecast range, but not greatly below it at this point.

Alternative Futures - S&P 500 - 2023Q1 - Standard Model (m=+2.0 from 13 September 2022) - Snapshot on 17 Mar 2023

The developments suggest the dividend futures-based model's multiplier may have shifted in response to the change in outlook. If so, it will take time to sort out how much it may have shifted, because expectations for future dividends have also been negatively impacted by the past week's events. We'll take a closer look at how dividend futures have changed later this week.

With the Federal Reserve meeting later this week to discuss hiking rates once again, despite the developing banking crisis, the Fed's minions have been mostly silent, making the bank failures and potential contagion fear the main market-moving news headlines for the week that was.

Monday, 13 March 2023
Tuesday, 14 March 2023
Wednesday, 15 March 2023
Thursday, 16 March 2023
Friday, 17 March 2023

The CME Group's FedWatch Tool completely changed direction this week. While a quarter point rate hike appears to still be set for the Fed's 22 March (2023-Q1) meeting, investors now expect that will be followed by a series of rate cuts starting as early as 14 June (2023-Q2) and continuing every 6-to-12 weeks through June 2024, when the Federal Funds rate will have fallen to a target range of 3.25-3.50%. That kind of forecast action only occurs during recessions.

The Atlanta Fed's GDPNow tool's projection for real GDP growth in the first quarter of 2023 rose to +3.2% from its previous +2.6% estimate. Since the first quarter is nearly over, that indicator is transitioning to look backward instead of forward.

Image credit: Photo by Maxim Hopman on Unsplash.

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