FNY - S&P 500 Heads Down As Q3 2023 Ends

2023-10-02 19:20:00 ET

Summary

• The S&P 500 dropped 0.7% from its previous week's close to end the third calendar quarter of 2023 at 4288.05.
• The main reason the market fell during the final week of 2023-Q3 is the developing consensus the Federal Reserve will hold interest rates higher for longer because inflation has not yet been adequately suppressed.
• The past week's news related to the looming shutdown has not affected stock prices in any meaningful way.

The S&P 500 (Index: SPX ) dropped 0.7% from its previous week's close to end the third calendar quarter of 2023 at 4288.05 .

The main reason the market fell during the final week of 2023-Q3 is the developing consensus the Federal Reserve will hold interest rates higher for longer because inflation has not yet been adequately suppressed.

We looked for signs a looming shutdown of nonessential federal government operations at the end of its fiscal year was negatively impacting stock prices, but given the long-running dysfunctionality of Washington, D.C., news related to this year's looming shutdown contributed imperceptible levels of noise to the trajectory of stock prices.

The past week's news related to the looming shutdown has not affected stock prices in any meaningful way.

Speaking of which, the trajectory of the S&P 500 remains well within the latest redzone forecast range shown on the dividend futures-based model 's alternature futures chart , though trending down into the lower portion of it.

The trajectory of the latest redzone forecast range itself has similarly altered its trajectory downward since we first introduced it several weeks ago, coinciding with rising expectations the Fed will hold interest rates higher for longer than investors were expecting when we first drafted it.

Looking forward, we'll update this chart one last time before rolling out a first look at the alternative futures chart for 2023-Q4, which will take us through the end of the year.

Here's our recap of the meaningful market-moving news headlines for the final week of 2023-Q3:

Monday, 25 September 2023

• Signs and portents for the U.S. economy:
  • Oil prices settle near flat in choppy trade; Russia eases fuel export ban
• Traders calling foul on Fed officials' bluff, Fed officials may have added to financial instability, suggest they may seek another rate hike:
  • Why traders aren't buying the Fed's 'higher-for-longer' vision
  • Hawkish Fed unwittingly stokes Treasuries 'basis trade' risks: McGeever
  • Fed doves, Fed hawks: US central bankers in their words
    • Fed's Kashkari sees another rate hike, then a hold
• Bigger trouble, stimulus developing in China:
  • China central bank adviser proposes structural reforms to revive economy
  • Even China's 1.4 billion population can't fill all its vacant homes, former official says
• Bigger stimulus developing in Japan, BOJ officials
  • Japan to compile economic package to ease inflation pain
• ECB officials thinking about sitting on their hands again:
  • ECB needs to be cautious about doing too much on rates - Villeroy
    • Oil price spike does not change ECB's view on inflation - Villeroy
• Wall Street posts gains as investors eye rate outlook

Tuesday, 26 September 2023

• Signs and portents for the U.S. economy:
  • Oil prices rebound, settle higher on worries about tight supply
    • Cushing oil stocks lowest in more than a year spark quality, price concerns
  • US yields at 2007 levels crimp stocks, while yen sirens blare
  • US new home sales tumble in August
• Most dovish Fed officials say betting odds of higher rates are rising:
  • Fed's Kashkari: 40% chance of needing 'meaningfully' higher rates
• Signs China's stimulus efforts are getting traction:
  • China powers global aluminium output to record high: Andy Home
  • China's industrial profits rebound in August but extend slump for Jan-Aug
• BOJ officials to keep never-ending stimulus alive longer:
  • BOJ may hold off on ending negative rates until April - ex-board member
• Bigger trouble developing in Eurozone:
  • Lack of momentum to weigh on German economic growth in 2024 - IMK institute
  • Exclusive-German economic institutes forecast 0.6% GDP contraction this year - sources
• Wall St pounded as investors grapple with higher rates
  • S&P, Dow slump to lowest close since early June amid rate concerns; May-end for Nasdaq

Wednesday, 27 September 2023

• Signs and portents for the U.S. economy:
  • Oil climbs 3% as steep US crude stocks draw adds to supply concerns
  • US durable goods orders beat expectations in boost to economy in third quarter
• Fed official says they don't think they've beaten inflation yet, BofA CEO says they have, Reuters mouthpiece says they need to move goalposts to accept higher inflation:
  • Fed's Kashkari: Unsure if Fed has hiked enough to bring inflation to target - CNBC
  • Bank of America CEO says Fed has won the near-term battle against inflation
  • When is success not success? When Fed gets inflation down to 2.5%: McGeever
• "Precise, forceful" stimulus developing in China:
  • China's central bank to use 'precise, forceful' policy to bolster recovery
• BOJ officials becoming less sure about keeping never-ending stimulus policy alive:
  • BOJ minutes show deviating views on future policy direction
  • BOJ's July debate highlights rift in view on rate hike timing
• ECB officials claim they may not be done with rate hikes, excited to shrink money supply:
  • ECB not necessarily done with rate hikes: Elderson
  • Eurozone money supply shrinks as ECB turns off taps
  • Eurozone 2024 fiscal tightening seen limited by slowing economy
• S&P 500 ekes out slim gain as investors weigh elevated yields

Thursday, 28 September 2023

• Signs and portents for the U.S. economy:
  • Oil eases 1%, reversing rally, on profit taking, interest rate worries
  • Bridgewater's Ray Dalio warns of impending debt crisis in US - CNBC
  • US GDP revised down in every first quarter from 2020 to 2022
• Fed officials say they're not sure what way they'll go with rate hikes:
  • Fed's Barkin says more data needed before making next monetary policy call
  • Fed's Goolsbee sees risk of 'error in view that low inflation needs high unemployment
• Signs of stimulus getting traction in China:
  • China's factory activity probably steadied in September
• Bigger trouble developing in the Eurozone:
  • German Chancellor says economy is facing cyclical downturn - Wirtschaftswoche
  • German GDP expected to contract 0.6% this year - economic institutes
• Wall St ends higher as investors digest economic data ahead of inflation report

Friday, 29 September 2023

• Signs and portents for the U.S. economy:
  • Oil settles lower but ends quarter up 28% on tight global supply
  • US inflation outlook brightens as underlying price pressures subside
    • Instant view: US core inflation slows in August, consumer spending rises
• Fed officials keep playing "will they or won't they" on rate hikes:
  • Fed doves, Fed hawks: US central bankers in their own words
  • Fed's Williams says central bank may be done with rate rises
  • What could break under higher-for-longer interest rates?
• BOJ officials told to keep deflation from coming back:
  • Japan's economy minister says authorities must ensure end to deflation
• ECB officials get good news and bad news:
  • Eurozone inflation falls to lowest in 2 years as economy slows
  • German unemployment rises less than expected in September
  • German retail sales fall unexpectedly in August
• S&P 500 dips after US inflation data, ending weak third quarter
  • Nasdaq, S&P, Dow end mixed, wrapping up worst month for markets since December

The CME Group's FedWatch Tool continues to project the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% through July (2024-Q3).

Starting from 31 July (2024-Q3), investors expect deteriorating economic conditions will force the Fed to start a series of quarter-point rate cuts at six- to twelve-week intervals through the end of 2024.

The Atlanta Fed's GDPNow tool 's forecast of annualized real growth rate during 2023-Q3 held steady for a second consecutive at +4.9%.

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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