S&P 500 Sets and Retreats from New Record High on Bearish Expectations of Fewer Rate Cuts

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The S&P 500 (Index: SPX) definitively broke through the 6,000 level on Monday, 8 November 2024, closing at an all-time record high of 6,001.35 that day.

Unfortunately, by the end of the week, the index fell by 2.2% from that new high to end the week at 5,870.62.

The precipitating event for that drop came on Thursday, 14 November 2024 as Federal Reserve Chair Jerome Powell stated that he saw no need to rush interest rate cuts. That was followed up by similar statements by other Fed officials.

In response to that new information, investors dialed back their expectations for future rate cuts. The CME Group’s FedWatch Tool still anticipates a 0.25% cut in the Federal Funds Rate the Fed controls on 18 December 2024, but the odds dropped from a near lock a week earlier to a 62% probability this week. The FedWatch Tool also projects another quarter point rate cut on 19 March 2025, followed by one last one on 17 September 2025, with the Federal Funds Rate bottoming at a target range of 3.75-4.00%.

The result of that change pushed the trajectory of the S&P to the bottom end of the range that would be expected for investors focusing on the distant future quarter of 2025-Q2. The latest update of the alternative futures chart captures the market’s response to the news of the Fed’s signaling.

The sudden change in the market’s trajectory is such that we’re now on the lookout for indications a new market regime is setting up. It’s too early to make that determination now, but the next several weeks will be important in determining whether the market is simply responding to a short-term noise event or if something more fundamental is changing within it.

Either way, part of that determination relies on the random onset of new information. Here are the past week’s market moving headlines:

Monday, 11 November 2024

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

• Oil falls as China stimulus fails to boost sentiment, US dollar strength
• Walmart and major retailers cut back on Christmas holiday imports. Here’s why

BOJ minions not sure of what direction they want to go, get easily distracted:

• BOJ divided on rate hike timing as U.S. election loomed, Oct summary shows
• BOJ hopes to keep 2% inflation target while monitoring climate shock risks

ECB minions getting super excited for their next rate cut:

• No reason not to cut rates in Dec as of now, ECB’s Holzmann tells paper

Dow ends session on top while S&P and Nasdaq inch up with CPI data looming

• Benchmark S&P 500 notches shortest time span on record between 1,000-point milestones
• This is how the S&P 500 is expected to finish 2024 as it is up 25% YTD

Tuesday, 12 November 2024

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

• Oil prices hold near 2-week low after OPEC cuts demand view, dollar rises

Fed minions say they’re still turning the screws on the economy, also say lots of liquidity for money markets, want private sector to innovate payments:

• US monetary policy still restrictive, two Fed officials say

• Fed policy is ‘modestly restrictive,’ Kashkari says
• US banks saw weaker loan demand in the third quarter, Fed survey shows

NY Fed’s Perli still sees ample money market liquidity

Fed’s Waller says private sector should lead on payment system innovation

• Fed’s Waller: Stablecoins could bring benefits to financial system

ECB minions getting excited to deliver more rate cuts, worry about trade with U.S.:

• More ECB rate cuts coming but pace of easing uncertain, Rehn says
• Europe must prepare for new trade war with US, ECB officials warn

S&P, Nasdaq snap win streaks, Dow ends lower as post-election rally takes a breather

• Record-breaking bitcoin surges towards $90,000 on Trump boost

Wednesday, 13 November 2024

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

• Oct CPI inflation up modestly, as expected
• Oil rebounds slightly on short-covering as strong dollar caps gains
• US East Coast, Gulf Coast port union and employers still at odds over automation

Fed minions worry they haven’t really beaten Bidenflation, may put future rate cuts on the line:

• Fed officials wary of inflation risks as they weigh more rate cuts

• Fed’s Schmid: extent of further rate cuts ‘remains to be seen’
• Musalem says Fed in ‘last mile’ of inflation fight, but recent data raise risks
• Fed’s Kashkari says he’s confident inflation is headed down

More stimulus developing in China:

• China unveils tax incentives to revive struggling property sector

BOJ minions upset they might not get to hold interest rates lower:

• Japan’s rising wholesale inflation heightens uncertainty on BOJ’s rate hike timing

ECB minions want Eurozone banks to manager risk better, seek to blame others for their pending policy failures as Euro falls in value on their watch:

• ECB wants banks to better manage private equity risk
• ECB’s Villeroy: Trump’s economic agenda risks global economy, return of inflation
• Why is the euro falling and could it hit $1?

Dow, S&P, Nasdaq end mixed as post-election rally slows; CPI inflation lifts rate-cut bets

Thursday, 14 November 2024

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

• Oil prices ease on fears of higher output, sluggish demand
• Rising US producer prices add to signs of fading disinflation

Fed minions say they’re doing a good job, don’t need to rush on delivering rate cuts, starting to worry about untamed inflation again:

• Fed’s Kugler says Fed has made good progress on achieving mandates
• Powell says no need for Fed to rush rate cuts given strong economy

• Fed has time to see what Trump policies mean for the economy, Powell says
• Fed’s Powell declines to say if he would remain after chair term expires

Barkin: Wages, possible tariffs, reasons to be careful about declaring inflation victory

Bigger trouble developing in Eurozone:

• Euro zone industrial production falls more than expected in Sept
• Euro zone employment ticks up, GDP growth figure confirmed
• Euro zone economy seen hit early next year by Trump tariffs, say economists: Reuters poll

Wall St indexes end lower after Powell erodes hopes for December rate cut

• Dow, S&P, Nasdaq end lower as Powell signals economic strength lends time to cut rates

Friday, 15 November 2024

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

• Oil prices set for weekly loss on China demand fears
• US import prices unexpectedly rise in October
• US industrial production sags in October amid continued drag from Boeing strike, hurricanes

Fed minions thinking about either shrinking or taking December rate cut off the table:

• Boston Fed president says December rate cut not a ‘done deal’, WSJ reports

• Strong US data feeds doubts about Fed December rate cut

Fed’s Collins won’t rule out a December rate cut, on Bloomberg TV

• Fed’s Collins says tech changes can improve financial system

Fed’s Goolsbee sees another 125 bps of rate cuts by end-2025

Bigger trouble developing in China:

• China’s Oct data shows soft economic underbelly, Trump threat looms large
• China’s home prices fall fastest in 9 years, but officials see signs of stabilisation

BOJ minions get reasons to hold Japan’s interest rates lower for longer:

• Japan’s economy expands annualised 0.9% in Q3 on tepid capex
• Japan October inflation likely eased, exports picked up: Reuters poll

Nasdaq slides 2%, S&P, Dow end lower as Powell remarks prompt repricing in rate cuts

The Atlanta Fed’s GDPNow tool‘s projection of the real GDP growth rate for the current quarter of 2024-Q3 was unchanged at +2.5%.

Image credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon with a sad Wall Street bull in front of a stock market chart showing a downtrend in an office, and a bear leaving the office holding a box that says ‘FUTURE RATE CUTS’”. We tweaked some parts of the image to convey the downward shift in the index and to properly label the bear’s box.