The S&P 500 Rebounds to New Record High as Heightened Volatility Confirmed

Given all the issues that are dominating the news, would you have guessed the S&P 500 (Index: SPX) would reach a new record high?

The index closed at a record high of 4,549.78 on Thursday, 21 October 2021, which puts the trajectory of the index into the upper half of the latest redzone forecast range:

Sharp-eyed readers will catch that the trajectory of the range has itself shifted upward, which is a result of the ‘dynamic’ method we use to set it. When we bridge across periods where the echoes of past volatility in stock prices affect the dividend futures-based model‘s projections, the past end of the range is fixed while the future end ‘floats’ with changes in expectations.

For the chart, the rising expectations for the future now means parts of the S&P 500′s actual trajectory that were once within the redzone forecast range now fall outside of it. That’s visible by design in this period because we set the total width of this forecast range to be plus-or-minus three percent of the historic typical level of volatity for stock prices.

Under typical volatility levels, the trajectory of the index should generally fall well within that statistically-determined range. But as the chart visually confirms, the market is experiencing greater than typical levels of volatility.

For us, what that means is that when we get around to projecting the S&P 500′s future trajectory for 2021-Q4, we’ll need to generate a new redzone forecast, since today’s stock prices will become the base reference points from which we project the future for the index in that period. The echoes of today’s volatility will affect the accuracy of the dividend futures-based model’s projections a year from now.

The market moving headlines of the week point to several contributing factors for what new information has contributed to improving the outlook for investors. Pay particular interest to the signs and portents for the U.S. economy in the latter half of the week that was:

Monday, 18 October 2021

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

• U.S. homebuilder confidence unexpectedly rises in October, survey shows

• Zillow shares slip as it pauses homebuying on U.S. labor, supply crunch

‘Enough’s enough’: tight U.S. job market triggers strikes for more pay

Oil prices ease off highs as U.S. factory data weighs on market

Chip shortages, Hurricane Ida weigh on U.S. factory output; demand remains strong

Another Fed minion caught trading while central banking:

• Powell Sold More Than a Million Dollars of Stock as the Market Was Tanking

Bigger trouble developing in China:

• China’s economy stumbles on power crunch, property woes

• China’s plunging construction starts reminiscent of 2015 downturn
• Instantview: China Q3 GDP growth hits 1-year low, raising heat on policymakers
• China’s Sept industrial output rises 3.1% y/y, misses forecasts

China faces challenges from ‘mismanagement’ at certain firms, says PBOC head

Bigger inflation developing all over:

• New Zealand inflation surges at fastest pace in over a decade
• No place to hide: investors to trawl Europe’s Q3 earnings for inflation clues

S&P, Nasdaq enjoy boost from big tech firms, Dow ends a hair lower

Tuesday, 19 October 2021

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

• Oil remains near multi-year highs as energy crunch continues
• U.S. housing starts fall; permits hit one-year low as shortages bite

Fed minions becoming concerned about inflation:

• Fed’s Waller says high inflation through year end may need ‘aggressive’ response

Bigger trouble developing in China is home made in China:

• China’s economic wobbles cast long shadow for Asia
• Analysis-China’s self-inflicted slowdown tests Beijing’s reform resolve

ECB minions see no reason to hike interest rates soon, are concerned by rising inflation:

• No reason for the ECB to increase rates by end of next year, Villeroy says
• ECB’s Rehn warns of risk if inflation surge lasts much longer
• Risk of higher euro zone inflation on the rise: ECB’s Vasle

Wall Street ends higher as investors bet on positive earnings season

Wednesday, 20 October 2021

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

• U.S. mortgage rates surge to 6-month high -MBA
• California ports, key to U.S. supply chain, among world’s least efficient

• U.S. trucking industry disruptions to last as long as pandemic persists – Buttigieg

Oil rallies as U.S. crude stocks decline in tight market

Pandemic fallout could slow U.S. online holiday spending growth: report

Fed minion says Fed’s policies are perfect:

• Fed’s Quarles: taper test is met, Fed not behind curve
• Fed report shows wage pressures amid ‘modest to moderate’ economic growth

Bigger trouble developing in China:

• China’s new home prices stall for first time since COVID-19

Bigger inflation developing all over:

• UK house prices rise 10.6% in year to August – ONS
• Energy, services boost euro zone inflation as expected in Sept
• Canada’s annual inflation rate hits 4.4% in September, highest since 2003
• Supply chain chaos set to extend further, port operator ICTSI says
• German regulator cuts power, gas grid earnings to protect consumers

ECB minions, having solved all problems of jobs and inflation, turn attention to climate change:

• Euro zone banks should be legally bound to climate transition plans, ECB says
• Bundesbank chief Weidmann quits early with one last inflation warning

• Weidmann: the often lonely ECB voice against easy money

Wall Street closes higher as earnings reports soothe investor fears

Thursday, 21 October 2021

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

• U.S. weekly jobless claims hit 19-month low as labor market tightens
• U.S. existing home sales surge to 8-month high in September
• White House tells Democrats that corporate tax hike unlikely in current bill -source
• Biden, Democrats shred spending, tax plans to get a deal done

Fed minions want to stop holding so many U.S. Treasuries, get new rules to minimize potential for insider trading:

• Fed should let its balance sheet shrink over next couple of years – Waller
• Fed puts ‘tough’ investment limits on top officials in aim to staunch scandal

Bigger inflation developing all over:

• World Bank sees ‘significant’ inflation risk from high energy prices
• Soaring prices dampen consumer mood in India’s festival season
• UK manufacturers raise prices by most since 1980 – CBI

BOJ minions want to stop doing so much stimulus, says Japan’s banks are stable:

• Exclusive-BOJ discussing phasing out pandemic support as economy reopens – sources
• BOJ says Japan’s banking system stable, warns of risks

IBM weighs on the Dow; Nasdaq and S&P gain ground

Friday, 22 October 2021

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

• U.S. business activity accelerates in October, shortages hamper factories – IHS Markit survey
• Biden backs down on corporate tax hikes, open to altering filibuster

Chief Fed minion says its time to taper stimulus bond buys while facing forced stock sale, another minion says Fed should keep stimulus going:

• Time for Fed to taper bond purchases but not to raise rates, Powell says

• Fed Chair Powell may need to sell millions in bonds under new rules

Fed’s Daly: standing pat is right course for monetary policy now

Bigger inflation developing all over:

• Exclusive-UK public’s inflation expectations rocket to record high: GfK
• China’s soyoil hit near 10-year high, crush margins swing back to profit
• Euro zone business growth slowed in October, prices soared -PMIs
• Japan’s consumer inflation turns positive as energy costs rise
• Euro zone inflation expectations hit ECB target of 2%

Mixed economic picture emerging in Asia:

• Japan’s private-sector activity grows for first time in 6 months – PMI
• South Korea’s economy likely lost some steam in Q3, cooling China a worry: Reuters poll

ECB minions want to be last in line to hike interest rates, may get new ethics rules like Fed:

• ECB to raise rates in 2024, but risk remains of earlier hike: Reuters poll

• Take Five: ECB, FAANG and China’s bond conundrum

ECB urged to tighten trading rules for policymakers

Nasdaq, S&P 500 end lower, dragged down by communications services

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