Unexpectedly Intriguing!
06 May 2024
An editorial cartoon of a Wall Street bull sitting up after having received CPR from a paramedic wearing a name badge that says 'RATE CUTS'

The S&P 500 (Index: SPX) was headed for a losing week, but got good news in the form of slowing U.S. job growth numbers late last week. While not necessarily as good for Americans, the news increased the likelihood the Fed will react to boost the U.S. economy by cutting interest rates more than once in 2024.

That prospect provided enough momentum for the S&P 500's to record its second up-week of the second quarter of 2024. The index ended the trading week at 5,127.79, up over 0.5% from where it closed the preceding week.

The CME Group's FedWatch Tool continued holding steady in anticipating the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 18 September (2024-Q3) for the third week in a row. However, the tool now projects the Fed will start a series of 0.25% rate cuts on that date that will continue well into 2025 at 12 week intervals.

The trajectory of the S&P 500 remained consistent with investors focusing on 2024-Q3 in setting current day stock prices. Moreover, the trajectory of the index looks set to rejoin the dividend futures-based model's projections associated with this future quarter in the next two weeks.

Alternative Futures - S&P 500 - 2024Q2 - Standard Model (m=+1.5 from 9 March 2023) - Snapshot on 3 May 2024

The deviation between the model's trajectories and the actual trajectory of the index is attributed to how the projections are generated. Because its projections are "locked-in" once it gets within a 30-day window of the present, if something unexpected happens to prompt investors to alter their outlook for the future within that period, it results in a short-term deviation between the model's projections and the S&P 500's trajectory. At least, until the trajectory gets outside the "locked-in" window of when the unexpected event began.

In a little over a week, the actual trajectory of the S&P 500 appears set to rejoin the model's projections that incorporate the information investors absorbed a little over 30 days earlier when an unexpected resurgence of inflation prompted them to push back their expectations for when rate cuts would start in the U.S.

Speaking of absorbing information, here's our summary of the market-moving headlines of the trading week ending on Friday, 3 May 2024.

Monday, 29 April 2024
Tuesday, 30 April 2024
Wednesday, 1 May 2024
Thursday, 2 May 2024
Friday, 3 May 2024

The Atlanta Fed's GDPNow tool is forecasting an annualized real GDP growth rate of 3.3%, down from its initial forecast of +3.9% growth in the previous week.

Image credit: Microsoft Bing Image Creator. Prompt: "An editorial cartoon of a Wall Street bull sitting up after having received CPR from a paramedic wearing a name badge that says 'RATE CUTS'".

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