XYLG - The S&P 500 Enters The Scary Season After Fed Signals Rates Higher For Longer

2023-09-25 21:17:00 ET

Summary

• S&P 500 dropped 2.9% from the previous week's close to end the week at a level of 4320.06.
• CME Group's FedWatch Tool now projects the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% through July (2024-Q3).
• The prospect of holding rates higher for longer was especially felt by the debt-laden firms that make up the Nasdaq 100 index and real estate firms, many of which are components of the S&P 500.

The S&P 500 (Index: SPX ) was rocked by the outcome of the Federal Reserve's two-day meeting ending on Wednesday, 21 September 2023. The index dropped 2.9% from the previous week's close to end the week at a level of 4320.06 .

Almost all of the week's drop for the S&P 500 was concentrated in the period after the Fed announced it would not hike interest rates in September 2023 but signaled it would hold rates higher for longer than investors had previously expected. The effect of that change can be seen in the CME Group's FedWatch Tool , which now projects the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% through July (2024-Q3), six weeks longer than expected last week. Starting from 31 July (2024-Q3) however, 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 prospect of holding rates higher for longer was especially felt by the debt-laden firms that make up the Nasdaq 100 index (Index:[[COMP.IND]]) and real estate firms, many of which are components of the S&P 500. As for the dividend futures-based model , we find the trajectory of the S&P 500 is still consistent with investors holding their attention on the end of 2024, with the index now in the lower half of the redzone forecast range. Here's the latest update of the alternative futures chart:

Here's our summary of the week's market-moving headlines, where you'll find most of the action in the latter part of the week that was:

Monday, 18 September 2023

• Signs and portents for the U.S. economy:
  • Oil prices rise as tight supply outlook offsets demand woes
• Fed officials excited they may get results they want without more rate hikes:
  • The Fed wants to cool spending; a strike, a shutdown and student loans may add ice
• Central banks getting ready to stop hiking rates:
  • India cenbank says stabilising core inflation shows easing price pressures
  • Bank of England readies what may be its final rate hike
  • Bank Indonesia to hold rates at 5.75% for rest of 2023, cut early next year - Reuters poll
• ECB officials thinking about cleaning up mess they've made:
  • ECB to tackle excess liquidity in next stage of inflation fight -sources
• Nasdaq, S&P, Dow end just above flatline as investors in 'wait & watch mode' ahead of Fed

Tuesday, 19 September 2023

• Signs and portents for the U.S. economy:
  • Oil prices ease after hitting 10-month highs as investors take profits
  • US housing starts hit three-year low; surge in permits point to underlying strength
  • Yellen says US growth rate needs to slow amid full employment
• Expectations set in for what Fed officials will do next:
  • Fed to hold rates steady, but signal policy path in meeting this week
  • Some investors bet peak policy rate is near ahead of Fed decision
• Bigger trouble developing in Canada:
  • Canadian inflation jumps, October rate hike bets rise
    • Bank of Canada: Underlying inflation is inconsistent with 2% target
• BOJ officials excited to keep never-ending stimulus alive, JapanGov official says they'll end it someday:
  • Japan's central bank will keep stimulus for now as risks grow
  • Japan's industry minister predicts eventual end to ultra-easy policy
• Nasdaq, S&P, Dow end slightly lower on eve of Fed rate decision; Instacart soars in debut
  • Instacart closes up 13%, down from an initial flourish; Valuation at $11.5B

Wednesday, 20 September 2023

• Signs and portents for the U.S. economy:
  • Oil falls as rate hike expectations offset US stock draw
  • US two-year Treasury yield rises to 17-year high on hawkish Fed
• Fed officials won't hike rates, but raise threat they won't reduce them in 2024:
  • Fed keeps rates steady, toughens policy stance as 'soft landing' hopes grow
    • Powell says soft-landing not baseline, but it's sure in the forecast
    • Fed sees tighter policy through 2024; Powell says new forecasts not pledge for action
• Bigger trouble developing in Japan, China:
  • Japan's exports extend declines as China slowdown bites
  • China economy faces many difficulties, challenges -state planner official
    • China's property crisis weighs on developing Asia's 2023 growth outlook - ADB
  • China pledges to accelerate introduction of more economic policies
• ECB officials get reason to not hike rates again:
  • German producer prices post biggest decline on record
• Nasdaq slides ~1.5%, S&P slumps, Dow ends in the red after Fed signals 'higher for longer'
  • Wall Street Reacts To The Fed's "Confused" 2024 Hawkish Shock

Thursday, 21 September 2023

• Signs and portents for the U.S. economy:
  • Oil falls as US rate hike expectations offset tight supply outlook
  • US weekly jobless claims drop to eight-month low; labor market remains tight
  • 10-year yields hit 16-year peak as Fed seen higher for longer
    • Housing economist warns of 8% mortgage rates after home sales disappoint
    • US existing home sales fall in August; house prices rise
• Fed officials expected to keep U.S. interest rates higher for longer:
  • The Federal Reserve: Expect Rates To Be Higher For Longer
• Expectations rise BOJ officials will end never-ending stimulus sometime next year:
  • BOJ will end negative interest rates in 2024, most economists say: Reuters poll
• ECB officials disappointed by results they're getting from their rate hikes, starting to worry about what will happen if they keep hiking:
  • ECB's Nagel says inflation not falling at desired pace
  • ECB policymakers warn over risk of further hikes
• S&P posts worst day since late March, Nasdaq down nearly 2%, Dow slides more than 1%
  • The Fed Crash Just Started

Friday, 22 September 2023

• Signs and portents for the U.S. economy:
  • Oil ends week lower as demand concerns face Russia supply ban
  • U.S. business activity nears stand-still in September, survey says
• Fed officials flag further hikes even after holding steady
  • Fed's Daly says she is not sure if need to hold rates, or go higher
  • Fed's Collins: Further tightening possible, though "patience" required
  • Nobody Knows Anything, Dot Plot Edition
• Some central bank officials pausing rate hikes, others proceeding with them:
  • Bank of England hits stop on rate hike run as economy slows
  • Swiss central bank in wait and see mode after surprise pause in hikes
  • Norway raises rate to 4.25%, likely to hike again in Dec
  • Indonesia central bank holds rates, keeps focus on rupiah
  • Swedish central bank tightens policy, says it may need to do more
• BOJ officials excited to continue never-ending stimulus as economy slows and inflation grows:
  • BOJ keeps ultra-loose policy, dovish guidance, yen skids
    • QUOTES: BOJ Governor Ueda's comments at news conference
    • With Most Central Banks Ending Their Tightening Cycle, The BOJ Remains Too Terrified to Even Start
  • Japan's factory activity shrinks, service sector growth slows in Sept - PMI
  • Japan's Aug inflation stays above BOJ target for 17th month
• Bigger trouble developing in Eurozone from things ECB officials did:
  • Euro zone recession risks grow as rate hikes bite-PMI
    • Shrinking German business activity points to Q3 contraction-PMI
    • France's services sector contracts sharply in September - flash PMI
• S&P 500, Nasdaq notch biggest weekly losses since March
  • Real estate stocks extend losses as rates soar

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