Unexpectedly Intriguing!
05 September 2023
Every Cloud Has a Silver Lining photo by Colin Smith via Geograph Britain and Ireland - https://www.geograph.org.uk/photo/3086458

The S&P 500 (Index: SPX) had one of its best weeks of 2023. The index closed the trading week ending on 1 September 2023 at 4515.77, which was up 2.5% from the previous week's close.

The reason why stock prices rose however is because of negative changes in the outlook for jobs in the U.S. The biggest driver was a large reduction in the number of job openings, which dropped to their lowest level since March 2021.

That assessment of a softening job market was reinforced with 1 September 2023's employment situation report, which showed an increase in the unemployment rate.

For the stock market however, these negative developments produced a positive result, as investors bet on the bad jobs news taking any additional interest rate hikes in 2023 off the table. Prior to the week's jobs-related news, investors were giving a greater than 50% probability of at least one more quarter point rate hike in 2023. The elimination of that probability is positive for stocks, especially for those firms that rely heavily on debt financing, who investors believe will benefit from having higher profits from lower-than-previously-expected interest costs. It's the proverbial silver lining on a dark cloud.

The S&P 500 moved up into the upper portion of the newly added redzone forecast range in the latest update of the dividend futures-based model's alternative futures chart.

Alternative Futures - S&P 500 - 2023Q3 - Standard Model (m=+1.5 from 9 March 2023) - Snapshot on 1 Sep 2023

Overall, stock prices are behaving as expected with investors continuing to focus their attention on the final quarter of 2023 in setting current day stock prices.

Here's our summary of the week's market moving headlines:

Monday, 28 August 2023
Tuesday, 29 August 2023
Wednesday, 30 August 2023
Thursday, 31 August 2023
Friday, 1 September 2023

The CME Group's FedWatch Tool continues to show no rate hike in September (2023-Q3). The big change from last week came as investors stopped betting one last quarter point rate hike later in 2023 following the past week's jobs report and downward revisions in previous months' employment numbers. Now investors expect the Fed will hold rates steady until 1 May 2024, when they anticipated the Fed will start a series of quarter point rate cuts that will continue at six-to-twelve-week intervals through the end of 2024.

The Atlanta Fed's GDPNow tool predicts an annualized real growth rate of +5.6% during 2023-Q3, down from the previous week's estimate of +5.9% growth.

Image credit: Every Cloud Has a Silver Lining photo by Colin Smith via Geograph Britain and Ireland. Creative Commons. Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0).

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