S&P 500 Wins As Fed Officially Capitulates

The biggest news for S&P 500 (Index: SPX) investors in the final week of January 2019 was the Fed’s announcement that it would pause both its series of interest rate hikes and its quantitative tightening program aimed at reducing its holdings of U.S. Treasuries and Mortgage-Backed Securities (MBS) on its balance sheet.

Investors responded positively to the Fed’s official capitulation in the face of market reality, boosting stock prices up to the top of the range indicated by the redzone forecast in our alternative futures spaghetti forecast chart, which assumes that investors are maintaining their forward looking focus on the current quarter of 2019-Q1.

Should stock prices break above their current level, it would indicate that investors are shifting at least part of their forward-looking attention toward 2019-Q2, which is a real possibility since the expectations for dividends to be paid out in this more distant future quarter rose from $14.65 per share to $14.75 per share during the past week.

The danger for investors continues to lie in what is expected to happen after 2019-Q2, as the rate of dividend growth appears set to considerably slow. If and when investors turn their attention to 2019-Q3 or 2019-Q4, the likely impact to stock prices will be to drop considerably. Just like what happened in December 2018.

Here are the major headlines that affected the outlook of investors during the final week of January 2019.

Monday, 28 January 2019

• Oil falls 3 percent on rising U.S. production, economic slowdown fears
• Bigger trouble developing in China:

• China’s industrial profits shrink again in Dec. on weak prices, demand
• You wouldn’t think they would have to be told this: China encourages insurers to invest in good quality stocks, bonds

China worries slam stocks, rising supply hits oil

• Caterpillar, Nvidia sound alarm on profit hit from China

Tuesday, 29 January 2019

• Oil prices up 2 percent following U.S. sanctions on Venezuela
• Bigger trouble developing in China:

• China to offer some subsidies on cars, appliances to lift weak demand
• As growth slows, China cuts local government debt costs to spur investment
• More Chinese provinces cut growth targets this year as gloom spreads

Wall Street wavers as tech gives ground and industrials rebound

Wednesday, 30 January 2019

• Oil gains on tighter U.S. supply, Venezuela sanctions
• U.S. mortgage applications fall as borrowing costs edge up
• FOMC statement from January 29-30 meeting

Instant View: Fed holds rates steady
• Fed could soon stop trimming $4.1 trillion portfolio, Powell says
• Fed’s Dovish Message Douses Rate-Hike Bets, Boosts Odds on Cut

Big thumbs-up from Wall Street after Fed signals patience on rates

• Earnings Recharge: Strong Reports From Apple, Boeing Help Lift Stocks Ahead Of Fed

Thursday, 31 January 2019

• U.S. crude settles lower amid trade concerns
• Bigger trouble developing in China:

• Over 300 Chinese firms flag full-year losses: state media
• China January factory activity shrinks for second month in a row as orders fall
• Yuan Plunges After China Caixin PMI Tumbles To 3 Year Low; Biggest Drop On Record
• China offers Xi meeting with Trump in China next month: WSJ

Eurozone Slowdown Feeds Fears About Faltering Global Growth

Bets on U.S. rate cut grow after Fed’s dovish shift

S&P 500′s best month since 2015 ends on a high note

Friday, 1 February 2019

• Oil prices up on strong U.S. jobs data, Venezuela sanctions
• Bigger trouble developing in China: Corporate China Faces Wave of Losses
• Trump to meet China’s Xi to try to seal trade deal, progress reported
• Fed’s Kaplan: Fed Likely On Pause Until At Least Summer

• Fed’s Kaplan says he has had concerns on risks since October
• Fed’s Bullard says pleased with level of U.S. interest rates: CNBC

Amazon jitters offset upbeat jobs data on Wall Street

Elsewhere, Barry Ritholtz outlined the positives and negatives he found in the week’s markets and economy-related news.