Unexpectedly Intriguing!
15 May 2023
A red panda bear yawns in a tree by Joshua J. Cotten via Unsplash - https://unsplash.com/photos/qdG1s7Kzj1o

After the previous week's Fed-driven volatile action, investors got some relief in the second week of May 2023.

Despite the relative stillness, there wasn't enough positive news to offset the negative to boost the U.S. stock market higher. The S&P 500 (Index: SPX) closed the week at 4124.08, down 0.3% from the previous week's level.

The market's most distressed sectors continue to be those most negatively impacted by the Fed's series of rate hikes, which includes regional banks, commercial real estate investment trusts, and financial services firms. That assessment is based on our regular sampling of firms announcing reduced dividend payouts this month, which includes smaller firms that aren't found in the S&P 500.

Meanwhile, the larger cap firms that make up the index have been turning in better than expected earnings, so the news is not all gloomy. We'll revisit the earnings outlook for the S&P 500 later this week, but first, here's the latest update to the alternative futures chart,

Alternative Futures - S&P 500 - 2023Q2 - Standard Model (m=+1.5 from 9 March 2023) - Snapshot on 12 May 2023

The trajectory of the S&P 500 continues to track well within the redzone forecast range indicated on the chart.

But then, that's exactly what should be expected for such an overall uneventful week. Here is our summary of what passed for the week's market-moving headlines.

Monday, 8 May 2023
Tuesday, 9 May 2023
Wednesday, 10 May 2023
Thursday, 11 May 2023
Friday, 12 May 2023

As in previous weeks, we've omitted the week's news coverage of the debt ceiling debate in Washington, D.C. in this week's summary. For all the headlines being generated about it, there's little sign it's contributing more than minimal noise to the trajectory of stock prices at this point of time. That may change and, if and when it does, we'll take note of whatever news it is that moves the needle for stock prices.

The CME Group's FedWatch Tool continues to indicate investors believe the Fed has reached the end of the series it began in March 2022 to combat President Biden’s inflation. The FedWatch Tool continues to project the Fed will hold the Federal Funds Rate at a target range of 5.00-5.25% until its 20 September (2023-Q3) meeting, at which time the Fed will initiate a series of quarter point rate cuts at six-to-twelve-week intervals to address building recessionary conditions in the U.S.

The Atlanta Fed's GDPNow tool projects a real GDP growth rate of +2.7% in 2023-Q2, up slightly from the +2.5% growth rate it anticipated a week earlier.

Image credit: Photo by Joshua J. Cotten on Unsplash.

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