S&P 500 Investors Focus on 2019-Q1 in Week 1 of 2018-Q4

In the first week of October 2018, S&P 500 (Index: SPX) continued to firmly fix their forward-looking focus on 2019-Q1 in setting stock prices.

At least that’s our takeaway from observing the trajectory of the S&P 500 against what our dividend futures-based model projects should happen when investors are closely focused on 2019-Q1, as shown on our spaghetti forecast chart.

And since the third quarter of 2018 is now long past over, it’s time to roll the chart forward to see what our model projects for 2018-Q4….

We believe that investors are primarily focusing on 2019-Q1 because of the current uncertainty for whether or not the Fed will hike interest rates in that quarter, where as of Friday, 5 October 2018, the CME Group’s FedWatch tool is now indicating a 57.2% probability that the Fed will follow up a quarter point rate hike in December 2018 with another one in March 2019.

That the odds of a 2019-Q1 rate hike are better than even is a relatively development, where there has been a lot of movement in the interest rate futures trading that helps determine the probability in recent weeks. As for what other new information was noteworthy during Week 1 of October 2018, the following list captures the headlines that we believe were most influential.

Monday, 1 October 2018

• U.S., Canada confirm they have reached new trade deal with Mexico
• Oil rises to 2014 highs on Iran Sanctions, NAFTA deal
• Fed’s Kashkari sees no need for interest rate hikes

• Boston Fed’s Rosengren: Job market too tight for too long poses risks
• Rosengren: No financial alarm bells, but lots of ‘yellow lights’

NAFTA replacement deal lifts Dow, S&P; Nasdaq negative

Tuesday, 2 October 2018

• Too much oil? Texas boom outpaces supply, transport networks
• Fed’s Powell says U.S. outlook ‘remarkably positive’

• Tariffs could lift U.S. prices but no sign yet: Fed’s Powell

Dow closes at record but Facebook drags on S&P, Nasdaq

Wednesday, 3 October 2018

• Brent hits new four-year high on Iran supply worries

• U.S. crude oil shipments to China ‘totally stopped’ amid trade war: shipping executive

Fed’s Evans says comfortable with a December rate hike

• Fed can hold rates ‘relatively indefinitely’ when mildly restrictive: Evans

As U.S. bond market swoons, Fed policymakers sanguine, for now

• Fed’s Mester says U.S. bond yield jump not of immediate concern

Financials lift Wall Street, but rate worry caps gains

Thursday, 4 October 2018

• Oil falls from four-year highs; Wall Street weighs
• U.S. Treasuries sell-off has ripple effect across globe, stocks sink
• Wall Street stumbles as bond yield climb continues

Friday, 5 October 2018

• Oil prices mark weekly gain ahead of Iran sanctions
• A decade of U.S. economic sluggishness may have just snapped back to normal
• Traders bet Fed will keeping raising interest rates

• Fed’s Williams sees ‘ways to go’ before rates pinch growth
• Fed’s Bostic urges getting to neutral monetary policy stance

Wall Street falls as solid jobs report boosts bond yields

• Buybacks to top use of S&P 500 companies’ cash in 2019: Goldman Sachs

For more of the week’s other economics and market-related news, be sure to check out Barry Ritholtz’ succinct summary of the week’s positives and negatives.