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Bank Failures, Contagion Fear Pull S&P 500 Back Toward Bear Threshold

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Down Market by Maxim Hopman via Unsplash -

The S&P 500 (Index: SPX) continued to be pulled lower during the trading week ending on Friday, 17 March 2023.

The index closed out the week at 3916.64, some 18.3% below its all-time record high from 3 January 2022. It is now within close range of the 20% below-peak level that commonly defines the boundary of bear territory for the U.S. stock market.

A series of news events related to bank failures, bailout actions, and potential impending failures prompted the fall in stock prices. Investors are on edge waiting for the proverbial next shoes to drop. The latest update alternative futures chart shows the level of stock prices running below the redzone forecast range, but not greatly below it at this point.

Alternative Futures - S&P 500 - 2023Q1 - Standard Model (m=+2.0 from 13 September 2022) - Snapshot on 17 Mar 2023

The developments suggest the dividend futures-based model‘s multiplier may have shifted in response to the change in outlook. If so, it will take time to sort out how much it may have shifted, because expectations for future dividends have also been negatively impacted by the past week’s events. We’ll take a closer look at how dividend futures have changed later this week.

With the Federal Reserve meeting next week to discuss hiking rates once again, despite the developing banking crisis, the Fed’s minions have been mostly silent, making the bank failures and potential contagion fear the main market-moving news headlines for the week that was.

Monday, 13 March 2023
  • Signs and portents for the U.S. economy:
  • Bank failures may force Fed minions to give up on rate hike plan they wanted:
  • Sliding bank shares drag Wall Street down in choppy trade
  • Tuesday, 14 March 2023
    • Signs and portents for the U.S. economy:
  • U.S. consumer prices increase solidly in February
  • Fed minions expected to deliver quarter point rate hike in March:
  • Bigger trouble developed in New Zealand:
  • Bigger stimulus developing in China:
  • BOJ minions claim they’re not worried about U.S. bank failures:
  • Wall Street ends green as inflation cools, bank jitters ebb
  • Wednesday, 15 March 2023
    • Signs and portents for the U.S. economy:
  • Fed minions devise bailout plan for banks facing ruin from rate hikes so they can keep hiking rates:
  • Bigger trouble developing in the Eurozone:
  • More post-COVID lockdown recovery signs in China:
  • BOJ minion thinks their never-ending stimulus plan was “half successful”, other minions having second thoughts:
  • ECB minions want to keep big rate hikes going, but are rethinking their plans:
  • Wall Street down as Credit Suisse sparks fresh bank selloff
  • Thursday, 16 March 2023
    • Signs and portents for the U.S. economy:
  • U.S. single-family housing starts, building permits rebound in February
  • US import prices fall in February, post first annual drop since 2020
  • Oil snaps declining streak as Saudi, Russia meeting calms markets
  • Fed minions expected to hike rates just a quarter point at next meeting:
  • More post-COVID lockdown recovery signs in China:
  • Bigger trouble developing in South America:
  • ECB minions keeps big rate hikes alive despite new bank failures:
  • ECB sets the template for rate hikes in a time of instability
  • ECB cuts through bank turmoil to keep rate hike pledge
  • Wall Street closes higher as First Republic helps lift banks
  • Friday, 17 March 2023
    • Signs and portents for the U.S. economy:
  • Expectations set for Fed minions:
  • Bigger stimulus developing in China:
  • ECB minions thinking they should ignore problems in bank sector to fight Eurozone inflation:
  • Euro zone labour costs jump 5.7% y/y in Q4
  • Wall Street ends sharply lower on bank contagion fears
  • The CME Group’s FedWatch Tool completely changed direction this week. While a quarter point rate hike appears to still be set for the Fed’s 22 March (2023-Q1) meeting, investors now expect that will be followed by a series of rate cuts starting as early as 14 June (2023-Q2) and continuing every 6-to-12 weeks through June 2024, when the Federal Funds rate will have fallen to a target range of 3.25-3.50%. That kind of forecast action only occurs during recessions.

    The Atlanta Fed’s GDPNow tool‘s projection for real GDP growth in the first quarter of 2023 rose to +3.2% from its previous +2.6% estimate. Since the first quarter is nearly over, that indicator is transitioning to look backward instead of forward.

    Image credit: Photo by Maxim Hopman on Unsplash.


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