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The Fed Sets New Expectations for the S&P 500

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We had two big Federal Reserve driven events during the third week of June 2021. The first was the Fed’s two-day meeting ending on 16 February 2021, when the Fed officially responded to increased expectations of inflation by moving up the projected timing for increasing U.S. short term interest rates.

The second event came on 18 February 2021, when influential Federal Reserve minion James Bullard indicated he saw the Fed having to act to hike rates even earlier, which led investors to suddenly shift their forward-looking attention to the upcoming 2021-Q3 in a new Lévy flight event.

The first Fed-related event played out as a change in the value of the amplification factor built into the dividend futures-based model we use to project the future potential trajectories of the S&P 500 (Index: SPX), where we showing that value as set at -2.5 from Wednesday, 16 June 2021. The second change shows the characteristic quantum-like shift to the trajectory associated with investors focusing on the future quarter of 2021-Q3 on Friday, 18 June 2021.

Those were the big events of the week that was, but there were other market-moving headlines for investors to absorb as well. Here’s our summary of those items:

Monday, 14 June 2021
  • Signs and portents for the U.S. economy:
  • Fed minions still sending taper smoke signals despite pre-FOMC meeting blackout :
  • ECB minions to keep up stimulus bond buys despite strengthening economy, Eurozone investors counting on it:
  • S&P 500, Nasdaq set record closing highs as Fed meeting looms
  • Tuesday, 15 June 2021
    • Signs and portents for the U.S. economy:
  • Analysts identify issues Fed minions will weigh from now through 2021-Q3:
  • Less big trouble developing in Japan:
  • Former BOJ minion wants BOJ to think about stopping stock fund buys:
  • Wall Street slips as Fed mulls policy, economic data disappoints
  • Wednesday, 16 June 2021
    • Signs and portents for the U.S. economy:
  • Fed minions do nothing now, indicate they’ll start hiking U.S. interest rates in 2023:
  • Bigger inflation developing all over:
  • Big trouble developing in China:
  • BOJ minions warned they are at the end of the road for negative rate policies:
  • Wall Street drops as Fed officials mull U.S. rate hikes in 2023
  • Thursday, 17 June 2021
    • Signs and portents for the U.S. economy:
  • Fed is about to shift gears, but this time it may be different
  • BOJ, ECB minions thinking about stopping stimulus, but not anytime soon:
  • ECB’s Lane says early to discuss end of emergency bond buys: Bloomberg TV
  • Nasdaq closes up on tech stocks strength, as hawkish Fed limits S&P
  • Friday, 18 June 2021
    • Signs and portents for the U.S. economy:
  • Fed minions send split message, one roils Wall Street:
  • Exclusive: Fed’s Kashkari opposed to rate hikes at least through 2023
  • Bigger inflation developing all over:
  • ECB minions to continue propping up Eurozone banks, will hang out in Frankfurt hotel to talk policy:
  • Dow, S&P post worst week in months after hawkish Fed spooks investors
  • Barry Ritholtz’ weekly succinct summary of the pluses and minuses he finds in the markets and economy news appears to be on summer hiatus. If you’re interested in a substitute news source, we’ll recommend Reuters Business News Headlines as a wide-ranging source.

    We think the Fed’s actions will have investors mostly focused on what will happen at the Federal Reserve’s upcoming meeting near the end of 2021-Q3 throughout the quarter. As we’re coming up on another period where the past volatility of the historic stock prices affects the accuracy of the dividend futures-based model’s future projections, we have adapted the corresponding redzone forecast in the alternative futures spaghetti forecast chart to represent where the S&P 500 is likely to range as investors mostly focus their attention on 2021-Q3.


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