HIBL - The S&P 500 Bull Market's Momentum Surges As Outlook Improves

2023-06-20 11:03:00 ET

Summary

• The trading week ending on Friday, June 16, 2023, saw the S&P 500 surge to 4409.59, up 2.6% from the previous week's close.
• The developing expectation is that the Fed will hold rates steady for several months after its next rate hikes, after which the central bank will have to shift into reverse.
• The Atlanta Fed's GDPNow tool estimate of the real GDP growth rate for current quarter of 2023-Q2 dropped to +1.8% from the +2.2% growth rate it forecast a week earlier.

The trading week ending on Friday, June 16, 2023, saw the S&P 500 (SPX) surge to 4409.59 , up 2.6% from the previous week's close.

One factor accounts for the bulk of the change. The Federal Reserve's expected action to pause its series of increases in the Federal Funds Rate that began for the first time since they started in March 2022. This action, or perhaps more accurately, deliberate inaction, confirmed a change in the momentum for changing the cost of borrowing in the U.S.

Although choosing to do nothing in June 2023, the Fed signaled it plans to continue hiking rates in the short term. Fed officials said their next meeting in July will be " live ", meaning another rate hike is still likely, with the CME Group's FedWatch tool indicating investors expect a quarter-point hike.

Beyond that, the message received by investors is that the Fed is nearly done with hiking rates. The developing expectation is that the Fed will hold rates steady for several months after its next rate hikes, after which the central bank will have to shift into reverse. That's a positive development, especially for publicly-traded companies that have high levels of debt with respect to their equity. The change in momentum for rate hikes improves their outlook.

That improved outlook can be seen in the projections for the S&P 500's quarterly dividends. The trading week ending Friday, June 16, 2023, saw the expectation for 2023-Q4's dividend payout fully recover to the levels it was before the failure of several regional banks three months earlier. Here's the latest snapshot, which confirms the dividend recovery for S&P 500 investors.

The change in momentum from the improved outlook has very visibly altered the projected trajectory of the index. The redzone forecast range on the latest update of the dividend futures-based model's alternative futures chart adjusted to project a faster pace of growth for the S&P 500.

While that was the main news for the week that was, other stuff happened too that would contribute to the improved outlook for U.S. businesses. Here's our summary of the week's market-moving headlines:

Monday, 12 June 2023

• Signs and portents for the U.S. economy:
  • Oil prices fall, U.S. Fed rate decision in focus
  • Healed from the pandemic, U.S. job market may face fresh wounds from the Fed
• Bigger trouble, stimulus developing in China
  • China's property sector set to be persistently weak for years -Goldman
  • Several Chinese lenders cut yuan deposit rates from Monday
• BOJ officials to keep never-ending stimulus alive, see slowing inflation:
  • BOJ set to keep ultra-low rates, may signal inflation overshoot
  • Japan's wholesale inflation eases, goods close to consumers continue to rise
• S&P 500 and Nasdaq close at highest since April 2022
  • Equities gain as investors look for cooler inflation, Fed 'pause'

Tuesday, 13 June 2023

• Signs and portents for the U.S. economy:
  • US consumer price increases slow; underlying inflation sticky
  • Oil prices settle more than 3% higher after China rate cut
• Fed officials expected to pause rate hikes, have new things to think about:
  • Fed kicks off meeting-by-meeting policymaking amid high uncertainty
    • Federal Reserve expected to skip June rate hike, but then what?
    • New inflation data tests Fed's faith in housing slowdown thesis
    • Fed still waiting on a core services price crash
• Bigger trouble, stimulus developing in China:
  • China's May new loans miss forecasts, more stimulus likely
  • China cuts short-term borrowing costs to support recovery
  • China considers broad stimulus with property support, rate cuts -Bloomberg News
• BOJ officials thinking about how, when to end never-ending stimulus:
  • Factbox-BOJ's next steps and triggers for policy shift
• Nasdaq, S&P, Dow close in the green after latest CPI report; all eyes now on the Fed
  • Marketmind: Inflation anxiety, yet S&P 500 keeps on running

Wednesday, 14 June 2023

• Signs and portents for the U.S. economy:
  • Oil drops 1.5% as Fed projects more rate hikes this year
  • US producer inflation subsides as energy, food prices drop
• As expected, Fed officials take break from hiking rates, but signal they want to hike more:
  • Fed leaves rates unchanged, sees two small hikes by end of 2023
    • Fed officials project more 2023 rate rises, amid hope inflation will still cool
    • Instant View: Still-hawkish Fed pauses rate tightening after 10 straight hikes
    • Fed's Powell appears to see plenty of room to run on balance sheet drawdown
    • The Fed's stages of inflation grief, in Powell's words
• Bigger stimulus developing in China:
  • China central bank seen cutting medium-term policy rate: Reuters poll
• Signs Eurozone recovering from technical recession:
  • Eurozone industrial production up more than expected in April
• US stocks end mixed after Fed signals more rate hikes to come | Reuters

Thursday, 15 June 2023

• Signs and portents for the U.S. economy:
  • Motor vehicles, building materials lift US retail sales in May
  • Oil futures up 3% on strong China refinery data, weaker US dollar
  • US manufacturing output barely grows in May
  • Outlook brightens among US Northeast manufacturers
• Fed officials set expectations for more rate hikes in 2023:
  • BofA expects Fed to deliver two more rate hikes, JPM adds July hike expectation
  • How the Fed hid a rate hike in its rate "cuts" for 2024
• Bigger trouble, stimulus developing in China:
  • China's May factory output, retail sales growth miss expectations
    • China's slower home price growth, deepening investment slump signal more easing
    • Tumbling exports feed worker unrest in world's factory China
  • China cuts medium-term loan rates as economy sputters, more easing expected
    • China eyes support for consumer, private sectors as growth falters
    • China's economy slows in May, more stimulus expected
• ECB officials excited to hike rates, excited for prospects to keep hiking them higher:
  • ECB raises rates to 22-year high, in no mood to pause
    • Lagarde comments at ECB press conference
    • ECB raises inflation projections through 2025
  • ECB mulls changing spread between rates in step towards new era - sources
• S&P 500 leaps to highest close in 14 months; traders bet US rates near peak

Friday, 16 June 2023

• Signs and portents for the U.S. economy:
  • Oil gains for the week as supply cuts balance demand concerns
• Fed officials say they are seeing too much inflation, signal more rate hikes:
  • Fed see key services inflation elevated with few signs of easing
  • Fed's Barkin says "comfortable doing more" if inflation does not fall
• Bigger trouble, stimulus developing in China:
  • Major banks cut China 2023 GDP forecasts as recovery falters
  • China’s cabinet pledges to roll out more measures to spur growth
  • China encourages private firms to participate in key supply chain projects
• Bigger trouble developing in the Eurozone:
  • Bundesbank sees German economy shrinking this year
  • Analysis-Sweden braces for fallout from property slump
• ECB officials declare their excitement for hike rates:
  • ECB policymakers line up behind rate hike plans
  • Euro zone May inflation confirmed at 6.1% yr/yr, core eases
  • ECB's Centeno: international market price falls yet to reach consumers
• BOJ officials keeps never-ending stimulus alive, for now:
  • BOJ keeps low rates and dovish guidance, markets not so sure
    • Quotes: BOJ Governor Ueda's comments at news conference
  • BOJ to weigh pros and cons of its tool-kit in review -governor
  • BOJ's next steps and triggers for policy shift
• S&P 500 ends lower as Microsoft recedes from record high

After the Fed paused its series of rate hikes that began in March 2022 for the first time at its June 2023 meeting, the CME Group's FedWatch Tool projects the Federal Reserve will hike the Federal Funds Rate once more to a target range of 5.25-5.50% when it meets on 26 July (2023-Q3). After that, the FedWatch Tool projects the Fed will initiate a series of quarter-point rate cuts at six- to twelve-week intervals starting in January 2024, with rates projected to fall to a target range of 3.75-4.00% in December 2024.

The Atlanta Fed's GDPNow tool estimate of the real GDP growth rate for current quarter of 2023-Q2 dropped to +1.8% from the +2.2% growth rate it forecast a week earlier.

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

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