Considering the outbreak of geopolitical events in the past week, it may be surprising that the S&P 500 (Index: SPX) end the week higher than it closed in the previous week. The index rose 0.45% to end the trading week ending on Friday, 13 October 2023 at 4327.78.
That's not to say there is no effect. Given a consumer price inflation report that wasn't negative enough to force the Federal Reserve to resume hiking interest rates on Thursday and the strong earnings reported by U.S. banks on Friday, there's a good argument to be made that stock prices should have risen higher. The increased tensions in the middle East as Israel responds to Hamas' 7 October 2023 invasion and massacre may perhaps be constraining what should otherwise have been a much better week for stock prices.
But the size of that effect appears to be small at this point, falling within the typical level of noise we see in regular day-to-day trading. The latest update for the alternative futures chart shows the S&P 500's trajectory is continuing to run to the low end of the redzone forecast range. That it still falls within the range suggests investors haven't been particularly swayed by the week's unfolding geopolitical events.
The fingerprints of geopolitics are legitimately showing up in the market-moving headlines of the past week. Here's what the random onset of new information looked like for investors:
- Monday, 9 October 2023
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- Signs and portents for the U.S. economy:
- Fed minions thinking about using rules to make it harder for banks to lend and also think rising yields might mean they don't have to hike rates again, though some aren't so sure:
- US Fed's top bank cop to discuss sweeping capital rules
- Top Fed officials nod to higher bond yields as cause for caution on rates
- Signs of stimulus getting traction developing in China:
- Bigger trouble developing in the Eurozone:
- ECB minions say they'll get inflation back down to 2% and think Eurozone won't have any gas shortages:
- ECB's Lagarde: confident over 2% inflation target and Europe's winter gas situation
- ECB's De Guindos sees inflation slowing down, but urges caution given growing uncertainty
- Nasdaq, S&P, Dow shake off Israel-Hamas conflict concerns, end higher on positive Fedspeak
- Tuesday, 10 October 2023
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- Signs and portents for the U.S. economy:
- Fed minions start hinting they really are done hiking rates:
- Marketmind: Fed pivot begins to crystallize
- Fed's Daly: Risks of doing too much vs too little 'roughly balanced'
- Kashkari: 'possible' higher bond yields mean Fed can do less
- Fed will stay 'on the job' to reduce inflation, Waller says
- Fed's Bostic sees no more U.S. rate hikes, no recession
- Fed's Perli says balance sheet run down still has a ways to go
- Bigger trouble developing in China, Eurozone:
- ECB minions still counting on inflation falling back to 2% target sometime in 2025:
- Nasdaq, S&P, Dow notch three-day win streak as yields slide; Fed comments provide boost
- Wednesday, 11 October 2023
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- Signs and portents for the U.S. economy:
- Gasoline, food drive US producer prices higher; core inflation cools
- Oil falls over 2% after Saudi pledge; investors keep wary eye on Israel
- Fed minions counting on being lucky might be wrong, some thinking about more rate hikes, others not so sure:
- Fed's 'golden path' to lower inflation may have some potholes
- Fed's Bowman says US policy rate may need to rise further
- Fed's Collins says central bank may have to hike again if data calls for it
- Fed's Waller: Fed can "watch and see" if further hikes needed
- Signs of stimulus getting traction developing in China:
- Bigger trouble developing in the Eurozone, ECB minions starting to think they might be done with rate hikes:
- German economy expected to contract 0.4% in 2023 - economy ministry
- Euro zone consumers see inflation slightly above ECB target for years
- Two key ECB policymakers see possibility that rate hikes may be over
- Nasdaq, S&P, Dow brush off hot producer inflation data to eke out gains; CPI in focus
- Thursday, 12 October 2023
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- Signs and portents for the U.S. economy:
- Surging rents lift US consumer prices; underlying inflation grinding lower
- Oil reverses gains after US posts large crude build
- Mortgage rates rise for 5th consecutive week
- Fed minions unsure why their rate hikes aren't lowering inflation:
- Fed's Collins says CPI data drives home uneven progress on restoring price stability
- Housing remains a puzzle in Fed's inflation fight
- BOJ minions get bad news for Japan's economy, worry about wage inflation, want to keep never-ending stimulus alive:
- Japan Aug machinery orders fall, overseas slowdown may weigh
- BOJ's Noguchi says wage growth momentum is biggest focus for Japan economy
- Japan central banker sees no pressing need to alter yield control policy
- ECB minions want to start thinking about things other than rate hikes:
- With rates near peak, ECB focus shifts to growth, bond spreads
- ECB can aim for soft landing for economy - Villeroy
- Nasdaq, S&P, Dow close lower after hot CPI data; eyes on big bank earnings
- Friday, 13 October 2023
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- Signs and portents for the U.S. economy:
- Oil surges nearly 6% after Israel begins ground raids into Gaza
- Major US banks show profit boost, but cautious on outlook, consumer health
- Young Americans cut spending, shun restaurants as prices rise -study
- Fed minions thinking they might really be done with rate hikes:
- Bigger trouble and signs of stimulus getting traction developing in China:
- China's consumer prices stall, factory deflation persists
- China's trade slump eases, boosting recovery hopes, but challenges persist
- BOJ minions expect more inflation than they claim they want:
- ECB minions thinking about unwinding their previous stimulus actions:
- Lesser trouble developing in the Eurozone:
- German economy expected to shrink slightly in Q3 - econ ministry
- Inflation has peaked in Germany - Bundesbank's Nagel
- S&P notches back-to-back weekly gains, Dow also advances; Nasdaq slips marginally
The CME Group's FedWatch Tool projects the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% through May (2024-Q2), unchanged from last week. Starting from 12 June (2024-Q2), investors expect deteriorating economic conditions will force the Fed to start a series of quarter point rate cuts at six-to-twelve-week intervals through the end of 2024.
The Atlanta Fed's GDPNow tool's forecast of annualized real growth rate during 2023-Q3 increased to +5.1% from the preceeding three weeks +4.9%. The so-called "Blue Chip Consensus" estimates range from a low of +1.5% to +3.9%, with a median estimate of +2.9%.
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