QVML - S&P 500 Rocked By Fed's Signal Of Bigger Rate Hikes And Silicon Valley Bank Failure
2023-03-13 11:47:00 ET
Summary
- Investors in the S&P 500 (SPX) couldn't catch a break during the trading week ending on 10 March 2023.
- At this time, it's premature to tell if the dividend futures-based model's multiplier has shifted again.
- The biggest question investors are considering involves the risk of additional bank failures that may be triggered in response to the Fed's rate hikes.
Investors in the S&P 500 ( SPX ) couldn't catch a break during the trading week ending on 10 March 2023.
The index was first rocked on Tuesday, 7 March 2023 by Federal Reserve Chair Jerome Powell's testimony signaling bigger rate hikes are coming. They were rocked again later in the week by news of the second largest bank failure in U.S. history.
For the week, the S&P 500 dropped a little over 4.5% to close out the week at 3861.59 . The index is 19.5% below its record high close of 3 January 2022.
Investors' response to these events knocked the S&P 500's trajectory below the redzone forecast range on the latest update for the alternative futures chart.
At this time, it's premature to tell if the dividend futures-based model 's multiplier has shifted again. The index's trajectory would need to remain persistently below the model's currently projected trajectories to make that call and, right now, investors are dealing with more questions than answers.
The biggest question investors are considering involves the risk of additional bank failures that may be triggered in response to the Fed's rate hikes. If new information verifies those risks are low, what we're seeing now is likely a short-term noise event and we should see the S&P 500 rebound to the model's projected levels. If new information says otherwise, we may have to wait until after the dust clears to find out how the multiplier may have shifted.
Speaking of new information, here are the past week's market-moving headlines:
Monday, 6 March 2023
- Signs and portents for the U.S. economy:
- Fed minions thinking they'd like to keep interest rates high for a while:
- Bigger trouble, creepiness developing in China:
- ECB minions thinking high inflation will continue, want more rate hikes, even though Eurozone economy is weaker than expected:
- S&P 500 ends slightly higher ahead of Powell testimony, upcoming data
Tuesday, 7 March 2023
- Signs and portents for the U.S. economy:
- Fed minions want to keep turning the screws:
- Bigger trouble developing in Japan and China:
- Central bank minions keep hiking rates, claim they're not happy about it:
- ECB minions claim Eurozone inflation is becoming less of a problem:
- Wall Street falls more than 1% as Powell flags sharper rate hikes
Wednesday, 8 March 2023
- Signs and portents for the U.S. economy:
- Fed minion tries to walk back their rate hike mania:
- Positive growth signs developing in the Eurozone after no growth to end 2022:
- Potential trouble developing in Canada as rate hikes take toll:
- BOJ minions expected to end part of never-ending stimulus:
- S&P 500 barely gains as investors eye upcoming jobs data, rate hikes
Thursday, 9 March 2023
- Signs and portents for the U.S. economy:
- Fed minions coming to think inflation they allowed isn't so transitory, not so sure of policy direction:
- BOJ minions officially have a new boss:
- Wall St falls on bank stocks tumble, jobs report jitters
Friday, 10 March 2023
- Signs and portents for the U.S. economy:
- Fed minions not sure of policy direction:
- Bigger trouble developing in China, Eurozone:
- BOJ minions keeping never-ending stimulus alive for now:
- Wall St sinks on jitters about banks after mixed jobs report
The CME Group's FedWatch Tool shows an explosive change in expectations this week. While a quarter-point rate hike appears still on tap for the Fed's 22 March (2023-Q1) meeting, that would be followed by a half-point rate hike on 3 May (2023-Q2) to reach a target range of 5.25-5.50%. After that, the tool's projections of the Federal Funds Rate’s future goes somewhat haywire until 2024, when a quarter-point rate cut appears on tap in March (2024-Q1).
On the GDP front, the Atlanta Fed's GDPNow tool 's projection for real GDP growth in the first quarter of 2023 rose to +2.6% from last week’s +2.3% estimate.
Based on that last data point, you might think there would not be any bank failures taking place, yet here we are. Stay tuned!
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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S&P 500 Rocked By Fed's Signal Of Bigger Rate Hikes And Silicon Valley Bank Failure