Unexpectedly Intriguing!
05 February 2024
A Wall Street bull celebrating after the stock market hits a new high. Image generated with Microsoft Bing Image Generator.

You might think having a stock market index clock in with new highs might get boring, but it hasn't yet. The S&P 500 (Index: SPX) rose almost 1.4% over its previous week's close to set another new record high close of 4,958.61 on Friday, 2 February 2024.

Part of what made the week not boring is how stock prices reacted to the news on Wednesday that the U.S. Federal Reserve had all but taken of starting a series of rate cuts in March 2024 off the table. Investors reacted that day by sending stock prices down 1.6% below the previous day's close, or 0.9% below where it closed in the previous week.

But then stock prices recovered and went on to increase into record high levels. Remarkably however, the latest update for the dividend futures-based model's alternative futures chart suggests investors are still closely focused on the current quarter of 2024-Q1 in setting the trajectory for the S&P 500.

Alternative Futures - S&P 500 - 2024Q1 - Standard Model (m=+1.5 from 9 March 2023) - Snapshot on 2 Feb 2024

With the prospect of rate cuts starting in March now all-but-dead, the bigger question is why are investors still apparently focusing their attention on the current quarter of 2024-Q1?

The best hypothesis we have at the moment for why investors are holding their attention on the current quarter is that it is still earnings season, with companies reporting their financial results for the fourth quarter of 2024 and providing their outlooks for 2024. The market-moving news headlines of the past week hint at that new information being absorbed by investors, but not so definitively for us to say "that's it!" In any case, here are the headlines that moved markets during the week that was:

Monday, 29 January 2024
Tuesday, 30 January 2024
Wednesday, 31 January 2024
Thursday, 1 February 2024
Friday, 2 February 2024

The CME Group's FedWatch Tool continues to signal investors expect the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 1 May 2024 (2024-Q2). This date marks the anticipated beginning of a series of quarter point rate cuts that are expected to take place at six-to-twelve-week intervals through the end of 2024.

The Atlanta Fed's GDPNow tool's updated estimate of real GDP growth for the first quarter of 2024 (2024-Q1) jumped to +4.2% up from last week's initial +3.0% growth estimate.

The S&P 500 is now just 49.31 points, or 0.83%, away from breaking through the 5,000 level for the index. Which is a big deal, seeing as it first broke through the 1,000 level in February 1998 during the inflation phase of the Dot-Com Bubble and hasn't been below it since July 2009. It's hard to believe the index has grown nearly five-fold over the last 14-15 years.

Image credit: Microsoft Bing Image Creator. Prompt: "A Wall Street bull celebrating after the stock market hits a new high."

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