A dovish inflation report lifted the S&P 500 (Index: SPX) during the trading week ending on Friday, 14 July 2023. The index rose 2.4% from the previous week's close to end the week at 4505.42.
Inflation came in lower than expected, which increased the likelihood the Federal Reserve's series of rate hikes that began in March 2022 is now much nearer its end.
That news combined with improving expectations for future dividends and thecombination of these factors boosted the outlook for the S&P 500. The dividend futures-based model adapted to these changes by shifting the potential trajectories for the S&P 500 upward. The latest update to the alternative futures chart shows the result of these changes to the model's projected future.
It also shows the actual trajectory of the S&P 500 is coming to the end of the redzone forecast range we introduced three months ago. As it does, it appears set to track along with the alternative trajectories for either 2023-Q4 or 2024-Q1. Assuming it does, it will represent a shift in the forward-looking focus of investors away from the current quarter of 2023-Q3 toward a more distant time horizon.
Although there's little difference in the level of stock prices projected between the two more distant future quarters, we think it's more likely investors will focus on 2023-Q4 because it coincides with the decisions that will determine when peak for the Fed's rate hikes will occur.
That can be seen in how those expectations changed during the past week. The CME Group's FedWatch Tool anticipates the Federal Reserve will hike the Federal Funds Rate by just a quarter point to a target range of 5.25-5.50% when it meets on 26 July (2023-Q3). After that, the FedWatch Tool now gives better than 50% odds the Fed's series of rate hikes that began in March 2022 will see just one more at its 1 November (2023-Q4) meeting, before potentially reversing to reduce the Federal Funds Rate as early as 13 December (2023-Q4). The FedWatch Tool goes on to indicate investors expect the Fed pursue a series of quarter point rate cuts at six-to-twelve-week intervals during 2024.
There was more information that helped set investor expectations during the second week of July 2023. Here's our summary of the week's market-moving headlines.
- Monday, 10 July 2023
-
- Signs and portents for the U.S. economy:
- Bigger trouble, stimulus developing in China:
- China's deflation pressure builds as consumer prices falter
- China central bank extends policies for financial support of real estate market
- BOJ minions excited to have inflation as problem:
- Nasdaq, S&P, Dow snap three-day losing streaks ahead of CPI, bank earnings this week
- Tuesday, 11 July 2023
-
- Signs and portents for the U.S. economy:
- Fed minions say they're excited to keep hiking rates:
- Bigger stimulus slowly rolling out in China:
- Wall St ends up ahead of CPI; JPMorgan, financial shares gain
- Wednesday, 12 July 2023
-
- Signs and portents for the U.S. economy:
- US consumer prices rise modestly in June; core inflation slowing
- US 30-yr mortgage rate tops 7% for first time since last fall
- Oil prices settle up as mild US inflation data calms fear of Fed rate hike
- Fed minions have new tool for handling bank runs, think their job in reducing inflation may or may not be getting easier:
- Banks can manage outflow risk in Fed's new payment service system, Mester says
- June inflation data may have pushed Fed over the mountaintop
- Bigger trouble developing in China:
- BOJ minions getting mixed signals about inflation:
- Japan households' inflation expectations rise, keep pressure on BOJ
- Japan's wholesale inflation slows for 6th straight month
- Nasdaq leads Wall St to higher close as CPI report lifts sentiment
- Thursday, 13 July 2023
-
- Signs and portents for the U.S. economy:
- Oil prices up, hit nearly 3-month high as US inflation eases
- Small business distress index hits mid-2020 high
- US producer prices barely rise in June; core PPI subsides
- Fed minions say they only want two more rate hikes, afraid of more bank failures:
- Fed closing in on end of rate hiking cycle, central bank officials say
- US Fed's Daly says rate hikes essential to bring down prices
- Fed's Daly: two more rate hikes likely needed this year
- Fed's Mester: More hikes needed to bring inflation back down to target
- Fed plans to boost US banks' reserve requirements; industry gripes
- Bigger trouble developing in China:
- China's exports fall most in three years as global economy falters
- China's Q2 GDP seen rising 7.3% y/y but on low base, recovery fades: Reuters poll
- ECB minions can't hide their excitement for hiking rates:
- Wall St ends up, extends recent gains on cooling US inflation
- Friday, 14 July 2023
-
- Signs and portents for the U.S. economy:
- Fed minions looking forward to planned rate hikes:
- Bigger stimulus developing in China:
- BOJ minions to rethink what's in their toolbox:
- Nasdaq, S&P end in the red, Dow ekes out gains as market takes a breather
The Atlanta Fed's GDPNow tool estimate of the real GDP growth rate for current quarter of 2023-Q2 increased to +2.3% from the forecast +2.1% growth rate recorded a week earlier.
Image credit: Stable Diffusion DreamStudio Beta: "bull running down Wall Street, good day for stock market, digital concept art".