The S&P 500 (Index: SPX) closed out the first quarter of 2023 on a high note, rising 1.4% on Friday, 31 March 2023 to end the week up by 3.5% from its previous week's close. The index concluded the quarter at a level of 4,109.31.
With the new assumption of the amplification multiplier incorporated into the dividend futures-based model, the latest update to the alternative futures chart indicates the trajectory of the S&P 500 is consistent with investors focusing their attention on the current quarter of 2023-Q2.
That makes sense because this quarter is when investors expect the Federal Reserve may significantly alter its future course. It will almost certainly contain the peak of the Fed's year-long series of rate hikes, and it may include the Fed's first rate cuts since the arrival of the Coronavirus Pandemic in 2020. Here's the chart:
Reports of cooling inflation as measured by Personal Consumption Expenditures (PCE) on Friday, 31 March 2023 were credited with the market's positive reaction. Here are the week's market moving headlines:
- Monday, 27 March 2023
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- Signs and portents for the U.S. economy:
- How the 2023 banking crisis unfolded
- U.S. bank regulators say system is sound, but rules need review
- Oil rises over $3 on Kurdistan export halt, banking optimism
- Fed minions make connection between banking crisis and recession:
- Bigger trouble developing in China, Eurozone:
- China's industrial profits slump deepens on soft demand, high costs
- In inflation-hit Germany, massive strike over pay to cripple transport
- Bigger stimulus developing in China:
- ECB minions see less lending, growth:
- Wall St equities gain, Treasury yields rise as bank worries ease
- Tuesday, 28 March 2023
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- Signs and portents for the U.S. economy:
- Bankers at US midsize lenders battle to keep deposits after exodus
- US consumer bankers tighten monitoring, processes as industry reels
- US regulator cites 'terrible' risk management for Silicon Valley Bank failure
- Oil extends gains on Kurdish supply risks, banking relief
- US goods trade deficit widens as exports decline
- US consumer confidence rises as Americans shrug off bank failures
- Bigger trouble developing among China's "Belt and Road" client countries:
- BOJ minions getting ready to roll out digital yen:
- ECB minions have a new problem:
- Wall Street ends down with tech; investors assess bank comments
- Wednesday, 29 March 2023
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- Signs and portents for the U.S. economy:
- Banking turmoil means recession fears are creeping back
- Column-Shadow bank boxing as money funds drain deposits: Mike Dolan
- S&P sees corp high-yield default rate doubling by year end
- US pending home sales rise for third straight month; loan demand increases
- Oil dips on profit taking, markets debate supply tightness
- U.S. retail sales to grow at slower pace in 2023 - NRF
- Bigger trouble developing in China:
- BOJ minions thinking about changing up never-ending stimulus policy:
- ECB minions thinking they might have a sticky inflation problem:
- Wall Street jumps with rosy outlooks from companies
- Thursday, 30 March 2023
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- Signs and portents for the U.S. economy:
- Signs of pain as easy cash era ends are growing
- U.S. labor force gap mostly due to pre-pandemic trends, study finds
- Fed minions may have a bank oversight problem, say they won't cut rates in 2023:
- Silicon Valley Bank and Fed supervisors: what's known so far
- Fed's Collins: Getting inflation down argues for no rate cuts this year
- Bigger trouble developing in Asia:
- South Korea March exports likely to see steepest decline in nearly three years - Reuters poll
- Thai exports drop less than expected, rebound not seen until H2
- Analysis-Hiring spree by China's debt-laden local governments fuels fiscal fears
- Positive developments in the Eurozone:
- German supply chain shortages ease but long way to go - ifo
- German inflation eases less than expected in March
- Spain inflation falls more than expected to 3.3% in March
- Wall St gains with tech shares; regional banks fall
- Friday, 31 March 2023
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- Signs and portents for the U.S. economy:
- U.S. Social Security fund seen depleted 2033, year earlier than previous estimate
- Fed minions thinking about what direction they'll go next:
- Fed's Williams says financial conditions key to rate policy outlook
- Fed's Collins says latest inflation data doesn't change policy path yet
- Positive signs for inflation in Eurozone:
- German import prices show smallest annual increase in two years
- French inflation eases to six-month low in March
- Bigger trouble developing in China:
- BOJ minions see inflation fall, but remain above target:
- Eurozone seeing lower inflation are pressures, but ECB minions thinking they need to keep rate hikes going:
- German import prices show smallest annual increase in two years
- Stubborn inflation keeps ECB on course for more rate hikes
- Indexes jump on inflation data; Nasdaq posts best qtr since 2020
The CME Group's FedWatch Tool has put nearly even odds of the Fed hiking the Federal Funds Rate by a quarter point to a target range of 5.00-5.25% at its upcoming meeting on 3 May (2023-Q2). After that, the FedWatch tool anticipates a series of quarter point rate cuts starting from July (2023-Q3) and continuing through December (2023-Q4), with the Federal Funds Rate declining to a target range of 4.25-4.50%. In 2024, the FedWatch tool foresees more rate cuts, with the Federal Funds Rate reaching a target range of 3.25-3.50% in September (2024-Q3).
The Atlanta Fed's GDPNow tool's projection for real GDP growth in the first quarter of 2023 dropped to +2.5% from the previous week's estimate of +3.2%. With the end of the first calendar quarter of 2023, the GDP indicator is now fully looking backward instead of forward.
Next week, we'll roll out a new chart showing how the dividend futures model anticipates the future for the S&P 500 will look like during 2023-Q2. But we're happy to spoil it by noting it will look a lot like 2023-Q1 given current assumptions and expectations!
Image credit: Wikimedia Commons. Wall Street Exit Sign by Kidfly182 Wall Street Mosaic Tile by Kidfly182. Creative Commons Attribution-Share Alike 4.0 International.