S&P 500 Backs Away from Near Record High
The S&P 500 (Index: SPX) closed out August 2024 just 18.8 points below its all-time record high set on 16 July 2024. But after the first week of September 2024, the index lost 240 points to end the Labor Day-holiday shortened trading week at 5,408.42. The index is now 4.6% below its record high after experiencing its worst week in the last year and a half.
While the S&P 500 declined on each of the four trading days of the trading week that was, its biggest declines came on two of those days: Tuesday, 3 September 2024 and 6 September 2024. On Tuesday, the market’s declines were led by AI and semiconductor stocks as investors sold off their holdings as the sector’s growth prospects are showing signs of fading.
By contrast, Friday’s decline can be traced to investor reaction to a disappointing jobs report, corresponding to worse than previously expected growth prospects for the U.S. economy.
The news of the week is such that investors shifted their forward-looking focus toward the more distant future quarter of 2025-Q2. That shift can be seen on the latest update of the dividend futures-based model‘s alternative futures chart. The trajectory of the S&P 500 now falls in the middle of the chart’s latest redzone forecast range.
This forecast range is anchored at 9 August 2024, when investors were focused on the distant future quarter of 2025-Q2 in setting stock prices. The future end of the forecast range is linked to the dividend futures model’s projection of the level of the S&P 500 on 4 November 2024, specifically its projection associated with investors focusing their attention on the nearer term future quarter of 2024-Q4 in setting the level of the index.
In setting the redzone forecast range up this way, we assumed investors would transition their forward-looking attention from 2025-Q2 to 2024-Q4 during the period it runs. That period bridges across a period in which the raw projections of the dividend futures-based model are affected by the echoes of past volatility, which arises because the model uses historic stock prices as the base reference points from which it projections are made.
How we set up the redzone forecast range is relevant because that’s how we can determine how far forward in time investors have shifted their attention as they set the level of the index. Less than a month into the period the redzone forecast range runs, finding the level of the S&P 500 in the middle of the range at this point of time is consistent with investors shifting their focus back to the more distant future quarter of 2025-Q2, similar to how they were focusing on that particular investment horizon in early August 2024.
According to the CME Group’s FedWatch Tool‘s latest projections, the Federal Funds Rate has more than 50% probability of being in a target range of 3.00-3.25% at that point of time. 2025-Q2 is also about when the pace of the Fed’s anticipated upcoming series of rate cuts is expected to start slowing.
That observation brings us to what may be investors’ main motivation for looking so far out into the future. How low will interest rates go?
The answer to that question isn’t in the past week’s market-moving headlines, which are tracking the nearer term questions of how big they’ll be in light of the evidence the market’s growth impulses are slowing….
- Tuesday, 3 September 2024
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- Signs and portents for the U.S. economy:
- US manufacturing mired in weakness; construction spending falls
- Fed minions agree: full steam ahead for rate cuts!
- Fed policymakers agree on need for rate cuts, but their reasons vary
- US housing inflation likely to fall in year ahead, Fed paper says
- Bigger trouble developing in China:
- Bigger trouble developing more slowly in Japan:
- Bank of Korea looking to get in on rate cut action:
- Bigger trouble developing in Eurozone:
- ECB minions not sure how to deal with Eurozone economy downturn:
- U.S. stocks tumble as September starts, investors cool on chips
- Nasdaq falls 3%, S&P, Dow finish lower as September trade kicks off with growth worries
- Wednesday, 4 September 2024
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- Signs and portents for the U.S. economy:
- Oil prices rebound after extended tumble, as OPEC+ mulls delay to output increase
- US job openings hit 3-1/2-year low as labor market eases
- Kroger CEO pins price increases on rising costs at trial
- Fed minions thinking about how big this month’s rate cut should be:
- Fed rate-cut size this month to hinge on job market health
- Fed’s Bostic warns against keeping restrictive policy stance for too long
- Bigger trouble developing in China:
- BOJ minions see slow growth signs:
- Eurozone economy got boost from Olympics:
- S&P, Nasdaq end lower following seesaw session centered on the slowing U.S. economy
- Thursday, 5 September 2024
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- Signs and portents for the U.S. economy:
- US economy is slowing, but still has momentum, former official says
- Crude oil rally fizzles as demand worries offset big U.S. storage withdrawal, OPEC delay
- Fed minions starting to get really worried about U.S. job market:
- Fed’s Daly says rate cuts needed to keep labor market healthy
- Fed seeks feedback on emergency lending operations
- Bigger trouble developing in China:
- BOJ minions see unwelcome inflation signs:
- ECB minions getting excited for more rate cuts:
- Nasdaq ends higher, S&P, Dow fall ahead of pivotal August jobs report
- Friday, 6 September 2024
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- Signs and portents for the U.S. economy:
- Fed minions expected to deliver bigger rate cut after August jobs report, starting to worry about recession:
- Fed’s Williams says time has arrived to start rate cuts
- Fed’s Waller says it’s time to lower rates, open to larger cuts
- Chicago Fed President Goolsbee voices concern about risks of recession rising
- BOJ minions not sure what to do about the data they’re getting:
- S&P slumps to worst week in over 1-1/2 years amid September blues, growth concerns
The CME Group’s FedWatch Tool anticipates the Fed will hold the Federal Funds Rate steady in its current target range of 5.25-5.50% until next week. On Wednesday, 18 September (2024-Q3), the Fed is expected to start a series of 0.25%-0.50% rate cuts that will occur at six-week intervals well into 2025 with an immediate 0.25% cut.
The Atlanta Fed’s GDPNow tool‘s projection of the real GDP growth rate for the current quarter of 2024-Q3 dropped to +2.1% from the previous week’s forecast of +2.5% growth.
Image credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon of a bear scaring a Wall Street bull”
Source: https://politicalcalculations.blogspot.com/2024/09/s-500-backs-away-from-near-record-high.html
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