The S&P 500 Rises with Investors Focusing on 2022-Q4

The final full trading week of October 2022 saw the S&P 500 (Index: SPX) rise 148.31 points, or just shy of 4%, to end the week at 3,901.06. That’s the highest close for the index since 14 September 2022, which puts it 895.50 points away from its record high close of 4,796.56 on 3 January 2022.

The S&P 500′s trajectory during the week remains consistent with investors focusing on the current quarter of 2022-Q4 in setting current day stock prices. The latest update to the alternative futures chart shows where that puts the S&P 500′s trajectory with respect to the dividend futures-based model‘s projections of where the index would be if investors shifted their attention to more distant future quarters.

We’re taking the trouble to point those alternative futures out because investors being focused on the current quarter means one thing with absolute surety. By the time this quarter ends, they will shift their forward looking focus to one of these other points on the time horizon. That shift, regardless of which future quarter they might settle upon, will be accompanied by a downward movement in the level of the index. How much of a downward movement will be determined first by which quarter draw their gaze and second by how much the expectations for dividends for that quarter might change.

We’ve seen that phenomenon before. It happened most recently during the second half of the second quarter of 2022 as the level of the S&P 500 repeatedly see-sawed between the levels associated with investors looking at different points of time in the future. For us, it’s exciting to watch these Lévy flight events play out in real time. Depending on how you’re invested, your entertainment factor while experiencing such high percentage changes in value may differ….

While the remainder of 2022-Q4 may not be quite as volatile as 2022-Q2 was, the one thing that can prompt investors to suddenly shift their time horizons is what they find in the random onset of new information. With that in mind, here are the market-moving headlines investors absorbed during the past week.

Monday, 24 October 2022

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

• U.S. business activity weakens again in October -S&P Global survey
• Oil prices ease on Chinese demand data, stronger dollar

Poll of economists show their expectations of Fed minions:

• Fed to hike by 75 bps again on Nov. 2, should pause when inflation halves – economists: Reuters poll

Some positive signs for China’s economy:

• China’s Sept copper imports jump on infrastructure spending
• China Q3 GDP growth tops forecasts but meaningful rebound elusive

But bigger trouble still developing in China:

• Xi says China’s economy has high resilience, room for manoeuvre

• China stocks tumble as Xi’s team fans economic concern; yuan weakens

China central bank head likely to step down amid reshuffle – sources

China’s Sept exports grow 5.7%, beat forecasts, imports weak

• China’s Sept crude oil imports fall, fuel exports hit 15-mth high

China’s Q3 pork output growth slows as farmers reduce breeding herds

China’s new home prices fall for second month on weak sentiment

And more bigger trouble developing in the Eurozone:

• Euro zone October PMI adds to evidence bloc is heading for recession
• German companies increasingly struggling to access credit – Ifo

BOJ minions busy keeping yen from crashing, JapanGov minions to launch more stimulus:

• Japan intervened, buying yen in foreign exchange market Friday -sources

• Japan’s suspected FX intervention fails to stem yen slide

Japan ruling party indicates stimulus to total around $174 billion -Kyodo

• Japan govt urges BOJ to be vigilant to market swings – stimulus draft

Wall St closes sharply higher on hopes of abating Fed

Tuesday, 25 October 2022

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

• Oil falls by more than $1/bbl as demand fears linger
• Inflation worries hurt U.S. consumer confidence; house prices decelerating
• U.S. home price growth slows in August, surveys show

Fed minions claim to have multiple paths to get to same place, politicians plead with Fed chief to back off rate hikes:

• Fed’s Bullard, Evans, show two paths to the same policy rate
• Fed’s Powell, on eve of next rate hike, urged to protect jobs

Bigger stimulus developing in China:

• China seeks to promote development of private businesses with more loans
• China makes it easier for firms to borrow from overseas as yuan drops
• China to promote foreign investment in manufacturing

Bigger trouble developing in China:

• China’s Q4 GDP hits early speed bump as COVID stifles economy
• China seeking to curb liquidity risks in $1.4 trln money market fund – sources
• Exclusive-China FX regulator surveys banks about positioning as yuan plunges – sources

Bigger trouble developing in the Eurozone:

• Euro zone banks see falling loan demand, tighter access to credit in Q4

S&P 500 adds to mid-October rebound from bear market low

Wednesday, 26 October 2022

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

• U.S. mortgage interest rates jump to 7.16%, highest since 2001
• U.S. new home sales fall in September; prices remain high

BOJ minions working to keep never-ending stimulus alive:

• BOJ ramps up bond buying ahead of policy meet, yields fall sharply

Central bank rate hike mania hits Canada, IMF says it wants MOAR rate hikes:

• Bank of Canada surprises with 50 bps hike, says slight recession possible

• Quotes: Top Bank of Canada officials speak after rate decision
• Bank of Canada slows pace of rate hikes as recession fears mount

IMF chief wants central banks to keep raising rates to hit ‘neutral’ level

S&P 500 ends lower, snapping rally on mounting slowdown fears

Thursday, 27 October 2022

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

• U.S. economic growth rebounds in Q3 on trade, but demand is slowing
• Biden says U.S. Q3 growth shows economic recovery ‘continuing to power forward’

• Yellen says U.S. GDP data shows strength, but also healthy slowdown

Oil rises on strong crude demand, despite China fears

U.S. core capital goods orders unexpectedly fall in September

The Fed has “soothsayers”:

• Fed’s soothsayers see signs of an inflation downshift
• Column-Central bank guns spiked by bank windfall backlash: Mike Dolan

Bigger trouble developing in China, South Korea, Germany:

• China sees growing risk of weakening external demand in Q4

• China’s industrial firm profits fall at faster pace in Jan-Sept

S.Korea moves again to ease credit crunch sparked by Legoland developer default

Germany needs billions to solve its energy crisis, but buyers are shunning its bonds

JapanGov minions keeping upping their fiscal stimulus plans:

• Japan’s extra budget for stimulus package to exceed $198 billion -NHK
• Japan to unveil $200 billion spending package to ease inflation pain – sources

BOJ minions determined to keep never-ending stimulus alive:

• Japan to keep ultra-low interest rates, defy global tightening trend

ECB minions excited to deliver more rate hikes:

• ECB raises interest rates again, trims bank subsidies

• ECB hawks play down change in rate language as doves claim small win -sources

Lagarde comments at ECB press conference

S&P 500, Nasdaq slide, while Dow ends higher on mixed earnings picture

• Analysis-Recession fears threaten perfect track record of post-midterm U.S. stock gains

Friday, 28 October 2022

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

• U.S. consumer spending rises strongly; wage growth moderating

• U.S. labor costs solid in Q3; private wage growth slowing

Oil prices down 2% as China widens COVID curbs

• OPEC expected to stick to view of long-term oil demand rise

Fed minions losing money, may pay attention to Treasury yield curve inversion, not expected to stop hiking rates:

• Fed on track for tens of billions in losses amid inflation fight
• Fed may be alert to favoured yield curve alarm :Mike Dolan
• Fed pivot not on horizon even as over-tightening risks loom- strategists

Bigger trouble developing in the Eurozone:

• Germany dodges recession but inflation climbs to 11.6%

Looking backward, Taiwan Q3 GDP growth tied to China lifting zero-COVID lockdowns:

• Taiwan Q3 GDP grows faster than expected on lifting of COVID curbs

JapanGov minion thinking about doing more to keep yen from crashing:

• Japan’s premier Kishida: Ready to act against excessive FX volatility

ECB minions excited to deliver rate hikes as Eurozone recession develops:

• ECB policymakers stick with hike plans even as recession looms

Wall Street surges to sharply higher close ahead of Fed week

• Wall Street rises as Apple boost outweighs Amazon gloom

The CME Group’s FedWatch Tool continues to project a three-quarter point rate hike when the FOMC next meets on 2 November 2022 and a half point rate hike on 14 December (2022-Q4). In 2023, the FedWatch tool projects another half point rate hike in February (2023-Q1), but now anticipates a quarter point rate hike in May (2023-Q2). That’s followed by two quarter point rate cuts, the first as early as June (2023-Q2) and the second in November (2023-Q4).

The Atlanta Fed’s GDPNow tool‘s first projection for real GDP growth in 2022-Q4 is +3.1%. Meanwhile, to close the books on 2022-Q3, the Bureau of Economic Analysis first estimate of real GDP for 2022-Q3 is 2.6%, slightly lower than the GDPNow tools’ final forecast of 2.9% for the recently ended quarter.