The S&P 500 Survives the Debt Ceiling Debate's Noise

The S&P 500 (Index: SPX) continued its pattern of recent weeks, briefly dipping outside its redzone forecast range before rallying to rise back into it.

Thanks to the week’s developments, we can now attribute the recent deviations outside the range to noise associated with the debt ceiling negotiations within the U.S. government. That noise contributed to a rise in very short term U.S. Treasury yields, which in turn, negatively impacted on the tech stocks that institutional investors hold to hedge against rising interest rate risks. For the S&P 500, tech stocks make up the most heavily weighted components of the index, so the index declined until U.S. politicians reached a deal to bump up the U.S. government’s debt ceiling.

Of course, being who they are, the politicians only kicked the can down the road, where this exercise is likely to be repeated later this year.

Otherwise, the trajectory of the S&P 500 is right about where it should be expected to be, as we’ve entered a relatively short period where the echoes of past volatility in stock prices are quieter than they’ve been in previous weeks. That relative quietness means the standard dividend futures-based model forecasts are consistent with the current trajectory of the index. As you can see, that situation won’t last long before echoes of past volatility return to skew the model’s projections once more, but we’ll enjoy it while we can.

In the meantime, here are the market-moving news headlines of note from the week that was:

Monday, 4 October 2021

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

• Oil settles above $81 with OPEC+ sticking to output increase
• U.S. factory orders gain steam as manufacturing keeps humming

Fed minion says expectations of higher inflation are setting in:

• Fed’s Bullard: U.S. businesses having no problems raising prices

Bigger trouble developing in China:

• Chinese property developers’ ability to repay debt hits decade low
• Cost Of Shipping Between China And U.S. Plunges… But For The Worst Possible Reason

BOJ minions advised to lower inflation target to something they can achieve, ECB minion says inflation is structural:

• Japan’s outgoing Finance Minister Aso said he urged BOJ to lower inflation target
• ECB’s de Guindos flags structural driver in inflation rise

Nasdaq ends sharply lower; rising Treasury yields sink Big Tech

• Wall Street slammed by rotation out of Big Tech

Tuesday, 5 October 2021

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

• U.S. service sector activity inches up in September; shortages persist – ISM survey
• U.S. services activity forges ahead; trade deficit races to record high

Fed minion shares brain with UK prime minister:

• Fed’s Evans: high inflation to fall as supply bottlenecks addressed
• Inflation will abate as supply meets demand, says UK PM Johnson

Bigger trouble developing in Eurozone:

• European business growth hurt by supply issues, pricing in Sept -PMIs
• German services lose momentum as catch-up effects wane, supply shortages spill over -PMI

Bigger stimulus developing in Japan:

• Japan’s new ministers vow bold action for pandemic-hit economy

ECB minions thinking about focusing on inflation:

• ECB to zoom in on inflation expectations, wages: Lagarde

Wall Street ends sharply higher as Big Tech roars back

Wednesday, 6 October 2021

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

• Subsiding COVID-19 infections boost U.S. private payrolls in September
• OPEC+ caution and money behind reluctance to pump more oil-sources

Bigger trouble developing in the Eurozone, Asia:

• Euro zone retail trade weaker than expected in Aug as food sales fall
• German industrial orders fall more than expected in August
• Factbox: How COVID-19 in Southeast Asia is threatening global supply chains

Wall Street ends higher on optimism about U.S. debt-ceiling deal

Thursday, 7 October 2021

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

• U.S. labor market regaining footing as weekly jobless claims fall sharply

Having solved problems of inflation and jobs, Fed minions focus on climate change:

• Fed’s Brainard says climate scenario analysis a key tool in measuring bank risks
• Fed’s Mester says U.S. inflation mostly driven by pandemic-related factors
• Fed ready to handle September jobs report with kid gloves

Bigger trouble developing in Japan, Eurozone:

• BOJ cuts economic view for 5 of Japan’s 9 regions
• German industrial production slumps on supply chain disruption

Bigger inflation developing all over:

• World food prices hit 10-year peak -FAO
• BoE’s Pill says size and duration of inflation spike bigger than expected

• UK firms raise their inflation expectations – BoE survey

ECB minions shocked to discover ECB has brain trust that’s worried about inflation:

• ECB’s brain trust spars over inflation outlook

Wall Street ends with solid gains; investors hail U.S. debt-ceiling truce

Friday, 8 October 2021

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

• U.S. Senate approves temporary lift of debt ceiling, averts default

• Marketmind: Kick that can

U.S. job growth slows sharply in September

• Fewer U.S. workers sidelined by Delta variant in September even as cases peaked, survey shows
• School hiring decline, worker shortages curb U.S. job growth in September

U.S. fed funds futures fully price in rate hike by December 2022 after payrolls

• Fed closes in on November bond taper after jobs report

Oil rises 4% in week as energy crunch shows no signs of easing

China scrambles to cope with fossil fuel shortages shrinking economy:

• China digs in on coal, oil gains as energy crisis deepens

Bigger trouble, stimulus developing in Japan:

• Japan household spending falls as COVID-19 curbs sap economic recovery
• Japan PM Kishida orders cabinet to compile extra stimulus budget

• Japan eyes support for chip plant construction with extra budget -Kyodo

Bigger inflation developing all over:

• Japan wholesale inflation likely hit 13-year high in Sept on rising commodity costs: Reuters poll
• Consumer goods companies walk a tightrope as inflation surges

ECB minions want to keep stimulus going:

• Premature ECB tightening could endanger recovery, Lagarde says
• ECB governors expect friction with governments as end of support looms

S&P 500 ends lower after U.S. September jobs miss

Did you know there are currently 505 companies’ stocks in the S&P 500? If you want to know how much any one of those stocks contributes to the value of the market cap-weighted index, check out SlickCharts’ Components of the S&P 500!