The S&P 500's Touches a New High But Retreats as Inflation Prospects Dampen Investors' Mood

After being beaten back by rising inflation concerns, the S&P 500 (Index: SPX) rebounded to reach a new record high closing value of 4,704.54 on Thursday, 18 November 2021, but retreated below that level to end the week at 4,697.96.

From the perspective of the alternative futures spaghetti forecast chart, the trajectory of the S&P 500 is riding just within the upper end of the redzone forecast range.

We suspect that investors are refocusing their forward-looking attention on 2022-Q2 since the Federal Reserve is now expected to initiate a new round of Federal Funds Rate hikes to address the persistent inflation that has developed since January 2021. The CME Group’s FedWatch Tool is anticipating two, maybe three rate hikes in 2022 for the Federal Funds Rate set by the U.S. Federal Reserve. The FedWatch Tool predicts a greater than 50% probability for at least two quarter point rate hikes, the first in June 2022 and the second in September 2022, but is now giving just under a 50% probability of a third quarter point rate hike in December 2022.

Here are the market moving headlines from the third week of November 2021:

Monday, 15 November 2021

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

• Oil settles mixed on questions over crude supply, demand, strong dollar
• Biden, needing a boost, to sign $1 trillion infrastructure bill

Most dovish Fed minion starting to expect ‘transitory’ inflation will linger:

• Fed’s Kashkari expects higher inflation continuing over next few months

Mixed economic signs in China:

• China industrial output, retail sales accelerate but property clouds outlook
• China property hit by rare convergence of demand, supply declines

Bigger inflation developing in Japan:

• Japan’s economy shrinks more than expected as supply shortages hit

ECB minion really wants to keep emergency stimulus measures going, willing to disregard market messages:

• ECB’s Lagarde keeps pushing back on rate hike bets and hopes

Wall Street ends little changed as rising yields weigh on tech

Tuesday, 16 November 2021

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

• U.S. import prices surge in October on petroleum, food
• U.S. manufacturing output races to 2-1/2-year high
• Oil settles mixed on tight inventories, demand worries
• U.S. retail sales surge as Americans kick off holiday shopping, brighten economic outlook

Fed minions beg for more time to act on inflation:

• Barkin says Fed needs ‘a few more months’ to see clear picture of inflation, labor market

Bigger trouble developing in China:

• Analysis-China’s real estate woes sap property investment products

ECB minions may be creating a problem for the Euro:

• Analysis-Latest ECB rate-hike pushback turns euro into falling knife

Retail boost helps lift S&P 500

Wednesday, 17 November 2021

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

• U.S. homebuilding drops, construction backlog surges as shortages worsen
• Inflation, monetary tightening could heighten systemic risks -U.S. Treasury research office

Fed minions starting to think inflation may be a problem:

• Fed officials say high inflation weighing on consumers and needs to be controlled
• Fed’s inflation debate heats up as Biden nears Fed chair pick
• Fed’s Daly: next step for Fed is forward guidance
• NY Fed’s Williams says Treasury market needs to be shored up for next big shock

Bigger inflation developing in Eurozone, UK, Canada:

• Euro zone Oct inflation confirmed at 4.1% y/y on energy spike
• UK inflation leaps to 10-year high, bolstering rate hike bets
• Canada’s annual inflation rate matches 18-year high, set to keep rising

ECB minions thinking they may have to deal with a housing bubble in addition to inflation:

• ECB sees rising risk that housing bubble will burst
• ECB must be attentive and vigilant on inflation: de Guindos
• ECB must be ready to act if inflation proves more durable: Schnabel

Wall Street down as retailers stoke inflation fears

Thursday, 18 November 2021

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

• U.S. economy regaining speed as unemployment claims fall; manufacturing surges
• Biden’s $1.75 trillion bill is not fully paid for, Congressional Budget Office says

• Yellen insists $1.75 tln U.S. social, climate spending bill ‘fully paid for’

Oil hovers above six-week low as China readies crude reserve release

• Exclusive: China reserve bureau working on crude oil release

Fed minions moving up plan to hike rates, one focused on other issues:

• Fed policymakers start penciling in earlier U.S. rate hikes

• Fed’s Bostic: could start normalizing interest rates next summer
• Fed to hike in Q4 next year; inflation to remain above target until 2024: Reuters poll

Fed’s Daly says dependent care is essential to supporting work

Bigger stimulus developing in Japan:

• Japan’s stimulus package spending to hit record $488 billion – Nikkei

ECB minion hoping inflation will go away:

• ECB’s Lane still expects euro zone inflation to ease next year

S&P, Nasdaq end at record peaks on strong earnings

Friday, 19 November 2021

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

• U.S. Thanksgiving dinner cost jumps with inflation on the menu, though deals remain
• Oil dives 3% to below $80/bbl on resurgent pandemic in Europe
• As Fed contemplates a move, Democratic states lag furthest in jobs recovery

Fed minions starting to think they need to taper faster to stop inflation, maybe shouldn’t coordinate policies with other central banks:

• As inflation surges, Fed to debate faster taper, earlier rate hikes

• Fed policymakers to debate a faster end to bond-buying
• Fed’s Waller favors doubling speed of bond taper in January, be done by April

Fed’s Clarida: global central banks should not coordinate policy

Bigger trouble developing in Eurozone:

• Europe lockdown rattles Wall Street, boosts safe-havens

Central bank minions hiking rates to fight inflation, ECB minions expecting inflation:

• New Zealand central bank on a hiking spree as economic climate gets hotter
• ECB’s Weidmann says inflation might stay above 2% for some time

• Weidmann contradicts ECB on easy policy ahead of December meeting

Nasdaq closes above 16,000 for the first time; Dow down again

• Safe havens surge, oil sinks as investor seek COVID

We’re shifting gears for the rest of the week with our annual week-long celebration of Thanksgiving, starting with a look at the inflation in the cost of a traditional Thanksgiving turkey dinner for 2021.