Unexpectedly Intriguing!
06 March 2023
Wall Street Sign

The S&P 500 (Index: SPX) recovered a large portion of the ground in lost in the trading week ending on 3 March 2023. Much of that gain however came on the final day of the trading week, as the index jumped 1.6% to close at 4045.64.

Before that, the index mostly treaded water, drifting within a narrow range with respect to where it closed the previous week.

As it did, the trajectory of the S&P 500 bounced off the bottom edge of the alternative futures chart's redzone forecast range. The index climbed back toward the middle of the range as investors' attention remained locked on 2023-Q1 and 2023-Q2.

This latter move makes sense because these are the quarters they expect will contain the last of the Fed's series of rate hikes that began in March 2022, which is why they've held the forward-looking focus of investors since the beginning of the year. That stability of investor focus, combined with the week's action in stock prices, means our working hypothesis that a new market regime began on 6 January 2023 still holds after being tested in the past week.

Alternative Futures - S&P 500 - 2023Q1 - Standard Model (m=+2.0 from 13 September 2022) - Snapshot on 3 Mar 2023

Meanwhile, the flow of new information presented a mixed picture for the U.S. economy, while more positive signs are developing in China and in the Eurozone, both of whose previous pictures had been much more negative. Here are the week's market moving headlines:

Monday, 27 February 2023
Tuesday, 28 February 2023
Wednesday, 1 March 2023
Thursday, 2 March 2023
Friday, 3 March 2023

The CME Group's FedWatch Tool continued to project three consecutive quarter point rate hikes at the Fed's upcoming 22 March (2023-Q1), 3 May and 14 June (2023-Q2) meetings, with rates topping out in a target range from 5.25%-5.50%. After that, the FedWatch tool anticipates the Fed will hold rates steady through the end of 2023 but will begin cutting them in March 2024.

The Atlanta Fed's GDPNow tool's projection for real GDP growth in the first quarter of 2023 dropped to +2.3% from its previous +2.7% estimate. The so-called average "Blue Chip" consensus forecast however rose to about +0.5%.

Image Credit: Wikimedia Commons. Attribution 2.5 Generic (CC BY 2.5).

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