Stalled Momentum for S&P 500

The S&P 500′s upward momentum stalled out in the MLK holiday shorted trading week. The index closed the week at 3,906.71, down 0.7% from the previous week’s record high closing value.

The week however provided the clarity we needed to fix the starting point for the redzone forecast range shown on the latest update to the alternative futures chart. Investors were focusing on 2021-Q2 as the S&P 500 caught up to the echo of past volatility from last year’s coronavirus recession crash.

Although its not shown on the chart, we’ve tied the opposite end of the redzone forecast range to the dividend futures-based model‘s projection of the trajectory associated with investor expectations for the distant future quarter of 2021-Q4, on the opposite side of the volatility echo, which extends to 10 May 2021. In doing this, we’re assuming investors will have shifted their forward-looking attention outward by that point of time, which is an assumption we may need to revisit.

There wasn’t much in the way of market moving headlines in the news of the week that was, but what there was indicates investors are focusing on 2021-Q2 at the present time.

Tuesday, 16 February 2021

• Signs and portents for the U.S. economy:

• Oil settles near 13-month highs; Texas deep freeze supports

Fed minions have positive outlook, want more government spending, but see COVID-19 closed schools advocated by teacher union-controlled Biden administration as harmful:

• U.S. financial outlook mostly good, growth could outpace China: Fed’s Bullard
• Fed’s George: Fiscal policy will remain important until pandemic is over

• Fed’s George: Pandemic changes in housing, work patterns could stress real estate markets

COVID school closures may slightly stunt U.S. economic growth: Fed paper

Less big trouble developing in the Eurozone:

• Scenario of 1.4 trillion euros in NPL’s in Europe after pandemic less likely: ECB’s McCaul to paper
• French unemployment falls to pre-crisis levels in fourth-quarter, skewed by lockdown
• Euro zone fourth quarter GDP falls less than earlier estimated
• Germany dashes hopes of businesses for quick reopening of economy

Stimulus hopes drive Dow to closing peak but interest rate worries loom

• Analysis: Rising U.S. yields could spur mortgage-related selling of Treasuries

Wednesday, 17 February 2021

• Signs and portents for the U.S. economy:

• Oil rises 1% as Texas freeze prompts U.S. production drop

• U.S. shale could face weeks of depressed oil production due to cold

U.S. manufacturing production rises solidly despite semiconductor shortage

Fed minions optimistic, see benefits to pandemic, think they will keep missing their inflation target, but are okay with overrunning it:

• Fed’s Barkin is ‘quite optimistic’ on U.S. outlook
• Pandemic led to U.S. housing boom, reduced credit card debt, New York Fed says
• Inflation not likely to hit Fed’s target through 2022, Rosengren says

Bigger debt developing all over:

• COVID response drives $24 trillion surge in global debt: IIF

Nasdaq ends lower as tech slides; inflation concerns weigh

Thursday, 18 February 2021

• Daily signs and portents for the U.S. economy:

• Oil falls after surging past $65 on Texas freeze
• Democratic drive for Biden’s $1.9 trillion stimulus plan could leave progressive priorities behind

• Yellen says tax hike would pay for part of Biden infrastructure bill

U.S. housing starts fall in January; permits soar

U.S. labor market struggling to regain momentum

Fed minion wants maximum jobs, sustainable growth, financial firms to address climate risk, and a pony. Analysts say Fed is locked into money printing to deliver:

• Brainard: Fed wants maximum employment, growth that is “sustainable”

• Fed’s Brainard: Financial firms should start addressing climate risk now

Analysis: Debt-laden world, rising bond yields – a toxic taper tantrum combo

Wall St closes down on tech slide, rising jobless claims

Friday, 19 February 2021

• Daily signs and portents for the U.S. economy:

• Oil extends losses as Texas prepares to ramp up output after freeze
• U.S. existing home sales unexpectedly rise in January
• U.S. factory activity cools; cost pressures mounting

Fed minions see risk of business failures, do not fear overheated economy, look forward to economic recovery, but really want more government spending and affordable child care:

• Fed sees ‘considerable’ risk of ongoing U.S. business failures
• Fed’s Williams does not expect economy to overheat due to fiscal aid
• Barkin: Economy should surge even absent full herd immunity to coronavirus
• Fed’s Rosengren says large fiscal package appropriate, hopes for full employment within two years

• Fed’s Rosengren says affordable child care pivotal to labor market recovery

Bigger trouble developing in Canada:

• Canada December retail sales slump 3.4% as COVID restrictions bite

Mixed recovery signs… :

• … in Japan:

• Japan cuts economic outlook in Feb for first time in 10 months
• Japan January factory output to rise for first time in three months: Reuters poll

… in the Eurozone:

• Exports energise German manufacturing as lockdown dampens services: PMI
• Euro zone services hobbled in February but factories sprinting: PMI
• Students in France wait for food handouts as COVID-19 destroys part-time jobs

ECB, Eurogroup minions starting to worry about debt:

• ECB faces tricky balancing act after pandemic debt surge
• Eurogroup chief says debt can’t be reduced without solid recovery

Wall Street closes flat as cyclicals shine, big tech falls

• Big tech-led equity inflows fuelling ‘mother-of-all asset bubbles’ – BofA

Elsewhere, Barry Ritholtz names the positives and negatives he found in the past week’s economics and markets news.