The S&P 500 Drifts Lower with Investors Focused on Fed's Upcoming Actions

The S&P 500 (Index: SPX) mostly drifted sideways to lower during the third trading week of November 2022. That’s mainly because nothing happened to change the time horizon of investors, who maintained their forward-looking focus on the current quarter of 2022-Q4.

At least, that’s how we’re reading the latest update to the alternative futures chart.

We think the drifting lower part of the S&P 500′s movement is related to dissipating noise from the previous week. Otherwise, the news of the week indicates what the Fed will be doing with interest rates, and more importantly, what they say they’re going to be doing with interest rates in 2023 at its upcoming December 2022 meetings is holding investor attention on 2022-Q4.

Here are the market moving headlines from the trading week ending on Friday, 18 November 2022.

Monday, 14 November 2022

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

• IMF says global economic outlook getting ‘gloomier’, risks abound
• Oil settles $3 lower on China COVID surge and firmer dollar

Fed minions dialing back rate hikes, claim they’re serious about slowing inflation:

• Fed may cut size of rate increases, but is not ‘softening’ inflation fight, Waller says
• NY Fed: Inflation expectations jump in October on gasoline cost fears

Bigger stimulus developing in China:

• China Plans Property Rescue as Xi Surprises With Policy Shifts
• China further extends loan repayment for small firms hit by COVID

BOJ minions can’t stop, won’t stop never-ending stimulus:

• BOJ’s Kuroda vows to continue monetary easing for now, focuses on wages

Eurozone economy better than expected back in September:

• Euro zone Sept industrial output much stronger than expected

ECB minions say they’re okay with smaller rate hikes:

• ECB policymakers caution against tightening policy too fast
• Euro zone wages finally rising but inflation expectations muted, ECB VP says

Wall Street ends lower as investors gauge Fed’s policy path

Tuesday, 15 November 2022

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

• White House says more infrastructure spending coming, rejects inflation link
• Slowed producer prices another plus for Fed’s inflation fight
• Oil prices settle higher on Druzhba oil pipeline disruption
• Port of Los Angeles October imports tumble, pressured by labor worries

Fed minions focusing on fighting inflation they haven’t yet dented, but thinking about the perfect time to pause rate hikes and the risk to financial system from crypto fails:

• Fed focused on addressing ‘much too high’ inflation: Cook
• Fed’s Harker: better to pause rate hikes at the right time than risk overtightening
• Fed’s tighter monetary policy hasn’t dented inflation yet, Bostic says
• Fed’s Barr: Concerned about blowback to financial system from crypto

Bigger trouble developing in China, Japan, Eurozone:

• China’s economy loses momentum as COVID curbs hit factories, consumers
• Japan’s economy unexpectedly shrinks as hot inflation, global slowdown take toll
• Dutch economy shrank 0.2% in Q3 as inflation bites
• German machinery exports dip, burdened by China – VDMA

Bigger stimulus developing in Eurozone:

• Exclusive-Germany steps up emergency cash plans to cope in blackout – sources

Central bankers falling into line with Fed’s rate hike actions and plans:

• Australia central bank stuck with smaller hike as wary of falling house prices

• Australia’s central bank to limit forward guidance on interest rates

Philippine central bank to raise rates by 75 bps- Reuters poll

India’s cenbank likely to go for smaller rate hikes as inflation eases -analysts

ECB minions thinking about keeping rate hikes going:

• ECB likely to keep raising rates beyond 2% level, says French central bank chief

Wall Street gains on inflation data, but rocky on geopolitics

• Euro loses ground after reports Russian missile hit Poland

Wednesday, 16 November 2022

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

• U.S. mortgage interest rates drop back below 7% – MBA
• U.S. import prices fall further in October
• U.S. manufacturing output barely rises; prior months revised down
• U.S. retail sales rise solidly; fourth-quarter GDP estimates raised
• Oil falls as Druzhba pipeline reopens, China COVID worries stay at the fore

Fed minions giving up on soft landing for U.S. economy from its rate hikes, keep focus on what they’ll do in December, claim they can’t deliver financial stability:

• Fed’s George says increasingly difficult to bring inflation down without a recession – WSJ
• Fed’s Daly: top policy rate of 4.75%-5.25% ‘reasonable’

• Fed’s Waller says ‘more comfortable’ with smaller hikes after recent data

Fed’s Williams says monetary policy not best tool for financial stability

Bigger trouble developing in Japan:

• Japan’s Sept machinery orders unexpectedly fall, raising capex concerns

Bigger trouble, stimulus developing in China:

• China’s home prices see biggest fall in 7 years, recovery bumpy
• China approves eight fixed-asset investment projects worth $1.27 billion in Oct
• China to step up prudent monetary policy, expand upward economic trend -central bank

ECB minions claim inflation is top priority, starting to worry about hiking rates, will be “prudent” in unloading holdings of EU government debt and that green policies will eliminate inflation:

• ECB must keep inflation fight as top priority, de Guindos says
• ECB has room to raise rates further but should proceed with caution, De Cos says
• ECB doves make case for increased caution in policy tightening
• ECB promises “prudent” balance sheet cut as stability risks rise
• ECB’s Panetta says green transition may help cut inflation

Wall Street ends down after Target outlook, Micron supply cut

• Micron expects to supply fewer memory chips in 2023
• Target’s holiday forecast squeezed by ‘stressed’ consumers, shares fall 17%

Thursday, 17 November 2022

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

• J.P.Morgan predicts a mild U.S. recession next year
• Gobble, gobble, gulp! Food prices put the bite on U.S. Thanksgiving feast
• Oil falls on worries of U.S. rate hikes, China demand outlook
• First TVs, now tortillas: U.S. companies set minimum prices to halt discounting
• U.S. housing starts tumble in October amid soaring mortgage rates
• U.S. labor market remains tight despite technology sector layoffs

Fed minions signal more rate hikes coming, Fed chief to set size of rate hikes:

• Fed’s Bullard: Even ‘dovish’ policy assumptions require more rate hikes

• Bullard: Up to Chair Powell to decide size of rate increases at upcoming meetings

Fed’s Jefferson says low inflation key to U.S. prosperity

Fed’s Kashkari: not stopping rate hikes until inflation peaks

Bigger trouble developing in China, Eurozone:

• China’s imports, exports will see greater pressure in Q4 – commerce ministry
• German exports likely to fall 2% next year – DIHK survey

BOJ minions determined to keep never-ending stimulus alive, or not:

• BOJ’s Kuroda repeats commitment to continue monetary easing
• Nakaso, a contender to lead BOJ, urges removal of emergency support

Wall Street drops as hawkish Fed official comments weigh

Friday, 18 November 2022

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

• U.S. existing home sales plunge; tight inventory keeps prices rising
• Oil slides 2%, posts second weekly decline as supply fears recede

Fed minions keep investor focus on what they’s do and say at December 2022 meeting, worry about bank liquidity:

• Fed to lift rates by 50 basis points, but peak policy rate may be higher: Reuters Poll
• Fed’s Collins: Another 75-bps hike could be ahead
• NY Fed: Bank liquidity may be tighter than thought, with policy implications

BOJ minions okay with inflation, stalling for time to keep never-ending stimulus alive:

• Japan’s inflation hits 40-year high as BOJ sticks to easy policy
• BOJ Gov Kuroda rules out rate hike until wages rise more

ECB minions taking money out of Eurozone economy, say they’ll hike rates decisively, but could slow their pace and drag them out:

• ECB begins great cash mop-up as banks repay 296 billion euros of loans
• ECB policymakers hint at slower rate hikes but quicker start to debt run-off

• ECB must raise rates decisively; let bonds expire from start of 2023, Nagel says
• ECB could slow rate hikes, but bond run-off should start soon, Knot says
• ECB has ‘long way’ to go with rate hikes, Knot says

S&P 500 ends higher, led by defensive shares

• Falling Q4 profit forecasts another negative for U.S. stocks

The CME Group’s FedWatch Tool continues to project a half point rate hike on tap for 14 December (2022-Q4). But in 2023-Q1, the FedWatch tool now projects a half point rate hike in February and a quarter point rate hike in March (2023-Q1), with the Federal Funds Rate reaching a peak target range of 5.00-5.25%. Looking further forward, the FedWatch tool still anticipates two quarter point rate cuts in 2023-Q4 (November and December) as the Fed is forced to go into reverse after developing recessionary conditions take hold in the U.S. economy.

The Atlanta Fed’s GDPNow tool‘s projection for real GDP growth in 2022-Q4 rose to +4.2% from last week’s +4.0% estimate. There continues to be a big gap between its forecast and the so-called “Blue Chip consensus” that continues to predict near zero growth in 2022-Q4.

With the Thanksgiving holiday later this week, we’re not expecting much to happen with stock prices. As such, we’re switching the rest of our week’s analysis over to resume our annual Thanksgiving celebration, where we’ll pick up with the next regular edition of the S&P 500 chaos series on Monday, 28 November 2022.