The S&P 500 Bounces to New High

The S&P 500 (Index: SPX) continued following its volatile path, ending the second week of December 2021 by bouncing up to a new record high of 4,712.02.

That volatility continues to fit with the market experiencing Lévy flight events, in which investors are shifting their forward-looking focus back and forth between different two points of time in the future. In this past week, between 2022-Q2 and 2022-Q3, depending on the timing for when the Federal Reserve might start hiking short term interest rates in the U.S.

The alternative futures chart shows investors are splitting their attention between these two future quarters, but are putting a heavier weight on the Fed’s rate hiking beginning in 2022-Q3.

That outcome is consistent with this report from the past week, which also appears in our summary of the week’s market moving headlines below. However, that reported focus doesn’t match the timing of the Fed’s projected rate hikes from the CME Group’s FedWatch tool, which gives greater than 50% probabilities of the Fed’s first quarter point rate hike in 2022 taking place in the second quarter, with another two taking place before the end of 2022, in the third and fourth quarters of the year.

For more context, here are the market-moving headlines we noted during the week that was:

Monday, 6 December 2021

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

• Rise in U.S. house prices to halve next year, affordability to worsen – Reuters poll

Bigger trouble developing in China, Eurozone, Japan:

• Chinese govt thinktank proposes growth target of above 5% for 2022

• China GDP to slow, will become inflation exporter, money managers say

Weaker foreign demand sinks German industrial orders in October

Japan’s Oct household spending extends declines on COVID-19 drag

Bigger stimulus developing in China:

• China frees up $188 billion for banks in second reserve ratio cut this year

Wall Street regains some ground with help from easing virus fears

Tuesday, 7 December 2021

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

• China’s Nov. soybean imports up on month, boosted by U.S. cargoes
• U.S. third-quarter labor costs revised sharply higher

Bigger stimulus developing in China:

• China central bank cuts rates on relending facility, benchmark cut chances seen as low

ECB minions think Eurozone banks aren’t taking risks seriously, don’t want to make long commitments, want to keep stimulus bond buys where they’re at:

• Euro zone banks complacent to rising risks: ECB’s Enria
• ECB should keep policy commitment short, focus on APP – Kazimir
• No need now for ECB to boost legacy bond purchase scheme: Muller

• Reuters interview with ECB policymaker Muller

Wall Street closes higher with Nasdaq boosted by tech rally

Wednesday, 8 December 2021

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

• U.S. job openings jump to 11 million; fewer workers voluntarily quitting

Bigger inflation developing in Eastern Europe:

• Analysis: East Europeans tighten belts for Christmas as inflation bites

Bigger stimulus developing in Japan:

• Japan plans massive tax breaks for firms that lift wages – reform draft

ECB minions think they should keep on keeping on, are okay with higher inflation sticking around:

• ECB should maintain sequence of future policy moves: Schnabel
• Euro zone inflation will take longer to fall back to 2%, says ECB

Wall St closes higher as vaccine update feeds optimism

Thursday, 9 December 2021

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

• U.S. weekly jobless claims at lowest level since 1969 as labor market tightens
• Biden administration signals Friday’s inflation data could be high

• White House’s Deese will not predict whether price rises will last through next year

Some investors betting Fed minions will wait until 2022-Q3 to hike rates:

• Fed to lift rates in Q3 next year, but risk it comes sooner: Reuters poll

Bigger inflation originating in China:

• China’s sky-high factory inflation slows amid price crackdown

Better news from Eurozone:

• German exports shoot up 4.1% in October

ECB minions ready to play games to keep stimulus bond buys going:

• Exclusive-ECB governors home in on temporary, limited bond purchase boost -sources

Wall St closes lower ahead of inflation data, Fed meeting

Friday, 10 December 2021

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

• U.S. consumer prices post biggest annual gain in more than 39 years

• Nov CPI heats up to highest year-on-year rate since 1982
• Biden says U.S. inflation has likely peaked

Fed minions betting on “soft landing”:

• Analysis-Fed’s “hot” economy experiment offers historic bet on a soft landing from high prices

Bigger trouble developing in UK, China:

• UK economy almost flatlined in October, adding to rate hike doubts
• China vehicle sales fall for seventh month in prolonged chip shortage

Wall Street gains, S&P hits record closing high as CPI meets expectations

With the Federal Reserve gearing up for significant changes in monetary policy, we wonder if we’ll soon need to account for a change in the value of m, the amplification factor in the dividend futures-based model for projecting the future for the S&P 500. We last adjusted it to -2.5 on 16 June 2021.