The S&P 500 Inches Up to New High

The S&P 500 (Index: SPX) inched up to close at a new record high of 3,934.83 on Friday, 12 February 2021.

Which is nice, but we have a bigger problem ahead of us. The echo of the onset of the coronavirus pandemic in the U.S. a year ago is about to play havoc with the projections of the dividend futures-based model we use to forecast the future of the S&P 500.

The echo effect arises from the model’s use of historic stock prices as the base reference points from which its projections of the future are made. Here, the extreme volatility that defined the stock market for months beginning in February 2020 is greatly skewing those projections.

We do have a useful trick to compensate for the echo of past volatility, which is indicated by the redzone forecast range shown on the chart. As shown right now, the entire redzone forecast assumes investors will focus on the distant future quarter of 2021-Q4, but we haven’t locked it in just yet. That will happen later this week, where the level of the index will determine to which future quarter’s trajectory it will be fixed. The other end of the redzone forecast range will continue to float, tied to the trajectory the model projects for investors’ focusing on 2021-Q4, on the other side of the echo.

What we’ve just described will be clearer next week, after we’ve fixed the near term end of the redzone forecast range.

Until then, we’ll be paying close attention to any changes in the expectations investors have for the future, which will determine how far investors set their time horizon. Speaking of which, here are the market-moving headlines we tagged during the past week.

Monday, 8 February 2021

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

• U.S. 10-yr yield rises to 1.2%, inflation expectations build
• U.S. households expect to boost spending, NY Fed survey finds
• Oil hits more than 1-year high on supply cuts, stimulus hopes
• Biden $15 minimum wage plan would cut 1.4 million jobs in 2025: CBO
• Oil rises 2% to more than one-year high on supply cuts, stimulus hopes (reuters.com)

Fed minions to keep money wheels greased for indefinite futures:

• Fed’s Mester says monetary policy will stay accommodative for very long time
• Fed’s Barkin says U.S. economy still needs support: FT

Bigger trouble developing in Japan:

• Japan’s economic recovery from pandemic likely stalled in fourth quarter: Reuters poll
• Japan bank deposits rise at record pace as firms, households hoard cash

ECB minions okay with easy money policies and higher inflation:

• ECB must keep easy money policy in place despite inflation surge: Lagarde

Wall Street sets record closing highs on stimulus hopes, vaccine deployment

Tuesday, 9 February 2021

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

• Biden’s pick for OMB downplays concerns about inflationary pressures
• Oil prices surge for seventh straight day of gains
• Cash flush Americans buying shares as pandemic limits spending options
• Biden says coronavirus relief should be limited to making less than $250,000

Bigger trouble developing in Japan:

• Japan’s households, firms continue to hoard cash as pandemic pain persists

Wall St. thinking about moving, analysts see short squeeze boosting S&P 500, Nasdaq up but Dow and S&P 500 dip slightly on day

• NYSE chief warns it may exit New York if stock transfer tax is imposed
• Short squeeze seen lifting S&P 500 further – Citi
• Stocks extend winning streak; stimulus in focus

Wednesday, 10 February 2021

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

• Oil in longest rally in two years as vaccines boost demand hopes
• U.S. consumer prices increase steadily in January
• OMB nominee says U.S. GDP won’t reach pre-pandemic levels for years without more aid

Fed minion doesn’t want to be fired, commits to Bidenomics:

• Wall Street rally runs out of steam ahead of Powell talk
• Powell’s Valentine to the Fed: ‘I love my job’
• Fed’s Powell, invoking war effort, calls for national jobs drive

Bigger trouble developing in South Korea, France:

• South Korea January jobs fall at sharpest pace in more than two decades
• French industrial output weaker than expected in December

BOJ minion sees potential downside to BOJ’s monetary policy, new blood expected to want more of it:

• BOJ policymaker highlights cost of huge asset buying, signals tweak in March review
• Analysis: As deflation looms, BOJ reshuffle gives more voice to advocates of big stimulus

ECB minion wants more government spending in Eurozone:

• Europe will need fiscal help into 2022: Lagarde

Wall Street rally pauses as big tech loses steam

Thursday, 11 February 2021

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

• Oil eases after record rally as OPEC, IEA fret about demand
• Pelosi aims to finish COVID-19 relief by month’s end
• New U.S. data next week to show 7.8% of workforce have multiple jobs
• CBO projects $2.26 trillion U.S. deficit in 2021 before Biden stimulus spending

Fed minions have surprisingly positive outlooks:

• Fed’s Barkin: U.S. economy doesn’t need ‘herd immunity’ to rebound
• Fed’s Harker says he does not see inflation roaring past 2%: CNBC

Bigger trouble developing in the Eurozone:

• Exclusive: EU faces bankruptcies and bad loans as COVID-19 help for firms ends – EU document
• Euro zone growth in 2021 to rebound less than expected

Nasdaq, S&P 500 gain on tech stocks, hopes for more stimulus

Friday, 12 February 2021

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

• Oil edges higher on U.S. stimulus hopes, tighter supplies
• Friendly fire erupts as economists spar over U.S. stimulus
• Lower-income households dim U.S. consumer sentiment

Fed minions see some trouble:

• Fed’s Kaplan says labor market still far from maximum employment
• Fed eyes trouble in commercial real estate, corporate debt in 2021 stress tests

Bigger trouble developing in the Eurozone, Japan:

• Euro zone in double-dip recession, recovery risks to downside: Reuters poll
• Japan to suffer bigger-than-expected slump in first quarter amid pandemic curbs: Reuters poll

S&P 500 hits record peak as stocks post weekly gain

The Big Picture’s Barry Ritholtz identifies the positives and negatives he found in the week’s economics and markets news.