The S&P 500 Swings to the Lower End of Its Projected Trading Range

The S&P 500 (Index: SPX) lost 3.3% of its value in the trading week ending on 9 December 2022, closing the week at 3,934.38. The S&P 500 is 18.0% below its record high peak of 4,796.56 recorded on the first trading day of 2022.

The index’ trajectory swung to the bottom edge of the latest redzone forecast range on the alternative futures chart and bounced along it during the week. This range is based on the assumption investors would be transitioning their forward-looking focus from 2022-Q4 to 2023-Q1 in the period from 22 November to 23 December 2022.

The market environment continues to force investors to pay lots of attention to how the Federal Reserve will be changing interest rates in the weeks and months ahead. A half point rate hike is anticipated to be set when the Fed’s Federal Open Market Committee completes its upcoming two-day meeting on 14 December 2022, after which, we anticipate investors will fully shift to the more distant future quarters of either 2023-Q1 or 2023-Q2.

If investors focus predominantly on 2023-Q1, the trajectory of the S&P 500 will remain within the redzone forecast range. If investors shift a larger portion of their attention further forward in time to 2023-Q2, the trajectory will drop below this indicated range.

Which outcome happens will depend on what new information becomes available during the week. Speaking of which, here are the market-moving headlines we found in the past week’s newstreams.

Monday, 5 December 2022

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

• U.S. services industry regains steam; factory orders accelerate
• U.S. factory orders beat expectations in October
• Oil falls over 3% after data raises Fed interest rate worries

Bigger trouble developing in China, Japan, Eurozone:

• China services activity shrinks to 6-month lows – Caixin PMI

• China’s trade likely shrank further in November as external, local demand weakened: Reuters poll

Japan’s service-sector activity growth hits 3-month low -PMI

• Japan Oct real wages post biggest fall in 7 years with hot inflation

Euro zone likely heading into mild recession-PMI

• Euro zone retail sales weaker than expected in Oct

ECB minions getting excited for December rate hike:

• ECB’s Makhlouf expects 50 bp rate hike on Dec. 15

• ECB’s Makhlouf says he can see scenarios where rates go beyond 3%

Wall St slides as services data spooks investors about Fed rate hikes

Tuesday, 6 December 2022

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

• U.S. trade deficit widens as goods exports hit seven-month low
• U.S banks warn of recession risk, inflation hurting consumers, shares hit

Bigger trouble developing in the Eurozone:

• Italy statistics bureau slashes 2023 growth forecast amid downside risks
• Analysis-Europe’s inflation problem will linger for years to come

Central bank minions continue rate hikes:

• Australia central bank raises rates to 10-year high, says more needed

• Australia’s Big Four banks pass central bank rate hike to home loan customers

Kuwait central bank raises discount rate by half percentage point – statement

ECB minions plan to hike rates, claim it’s natural:

• ECB to hike again but “very close” to neutral rates – Herodotou

Wall Street slumps on further recession talk, S&P posts 4th decline

Wednesday, 7 December 2022

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

• U.S. third-quarter productivity revised higher; labor costs still elevated

Fed minions surprised President Biden’s inflation wasn’t transitory:

• Inflation miss puts central bankers on back foot

Bigger trouble developing in Australia:

• Australia’s economy slows in Q3 as higher rates, prices sap spending power

Even bigger trouble developing in China:

• China’s trade suffers worst slump in 2-1/2 years as COVID woes, feeble demand take toll

China forced to lift zero-COVID lockdowns to boost economy; Eurozone economy better than expected:

• ‘Daylight is here’: China travel searches surge as public cheers COVID easing
• Euro zone economic growth revised up with household, business support

More central bank minions continue rate hikes:

• India central bank says inflation battle not over, raises rates again

• Expert View: India cenbank hikes key policy rate by 35 basis points

Bank of Canada makes big rate hike, hints it may the last one

Bank of England set to raise rates to 3.5% after inflation hits 41-year high

BOJ minions holding out to keep never-ending stimulus alive despite prediction they’ll be forced to rein it in:

• BOJ’s Nakamura says it is premature to tweak ultra-easy policy
• BOJ may ditch yield cap next year as inflation perks up-academic

ECB minions told Eurozone inflation will continue in 2023:

• ECB survey shows rising inflation expectations for year ahead

Wall St ends lower after choppy trading from rising recession worries

Thursday, 8 December 2022

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

• U.S. labor market still tight despite continuing claims hitting 10-month high
• U.S. Online goods prices fall in positive sign for Fed – Adobe
• Column-Oil prices slump as receding price-cap threat unmasks worsening demand: Kemp

China’s leaders expect ending zero-COVID lockdowns to boost China economy:

• China’s economy will pick up pace following new COVID rules: CCTV cites Premier Li

• China’s COVID easing seen knocking growth early next year before recovery kicks in

Bigger trouble developing in China:

• China Nov passenger vehicle sales drop 9.5%, first fall in six months – CPCA

S&P 500, Nasdaq snap losing streaks after jobless claims rise

• Exxon plans to raise spending in 2023, boost share buybacks
• Tax-loss selling in battered U.S. stocks could spur January snap-back

Friday, 9 December 2022

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

• U.S. producer prices increase; near-term inflation expectations ease
• Recession drumbeat gets louder as more U.S. CEOs strike mellow note for 2023

• Factbox-Big banks see global economy slowing more in 2023, with likely U.S. recession

U.S. household wealth falls for third consecutive quarter

Fed minions seeing more demand for emergency loans from banks:

• Fed discount window borrowing is edging up, but is it a problem?

Signs of easing inflation in China, Eurozone as consumer demand falls:

• China’s producer prices fall, consumer inflation slows on soft demand
• German households less pessimistic on inflation, survey shows

BOJ minions determined to keep never-ending stimulus alive:

• BOJ policymaker Takata rules out ending yield cap – Nikkei

ECB minions growing excited to deliver smaller rate hike as Eurozone falls into recession:

• ECB to raise deposit rate by 50 bps on Dec 15 as bloc enters winter recession: Reuters Poll

Wall Street ends lower as investors digest economic data

• Stocks fall, yields rise as inflation data sends mixed signals

The CME Group’s FedWatch Tool maintained its projection of a half point rate hike at the Fed’s upcoming 14 December (2022-Q4) meeting, but now anticipates another half point rate hike at its 1 February (2023-Q1). The Federal Funds Rate would then be boosted by a quarter point to a peak of 5.00-5.25% in May (2023-Q2). Looking further forward, the FedWatch tool now projects a quarter point rate cuts in 2023 as early as July (2023-Q3) followed by a second in December (2023-Q4) in response to expected recessionary conditions. A growing likelihood for a rate cut in 2023-Q2 is what we think would draw investors’ forward-looking focus to this quarter, which would send the S&P 500 lower.

The Atlanta Fed’s GDPNow tool‘s projection for real GDP growth in 2022-Q4 rose to 3.2% from last week’s +2.8% estimate. The “Blue Chip consensus” has also been updated to anticipate slightly over 1% real growth for the current quarter of 2022-Q4.