EPS - The S&P 500 Rebounds With Developing Recession Coming Into View
2023-05-01 09:02:00 ET
Summary
- The S&P 500 ended the week at 4169.48, rising 0.9% over its previous week's close.
- The CME Group's FedWatch Tool anticipates the Fed will hike the Federal Funds Rate by a quarter point to a target range of 5.00-5.25% at its upcoming meeting on 3 May.
- The BEA's initial estimate for real GDP growth in 2023-Q1 is +1.1%, which was substantially below the Atlanta Fed's GDPNow tool's projection of +2.5% for real GDP growth that we recorded last week.
Thanks to a much-lower-than-expected advance estimate of GDP and a rising probability of recession getting underway later in 2023, investors bid up stocks in anticipation that the Fed's next rate hike, scheduled for 3 May 2023, will be the last of the series of hikes that began in March 2022.
The S&P 500 (Index: [[SPX]]) ended the week at 4169.48 , rising 0.9% over its previous week's close. In between, stock prices had dived as low as 4,055.99 on Wednesday, 26 April 2023. Contemporary news reports attributed that decline to the combination of weak earnings coming on top of what was expected to be modestly strong economic growth to be reported later in the week, the combination of which would boost the likelihood the Fed would sustain the Federal Funds Rate at its expected peak level for an extended period before reversing course and cutting rates.
What changed that expectation was the worse-than-expected GDP estimate released on Thursday, 27 April 2023, which effectively moves up the expected timetable for rate cuts. That momentum carried through Friday, 28 April 2023, with the S&P 500 rising 2.8% from Wednesday's closing low for the week.
The alternative futures chart shows all that stock price action, but more importantly, shows it puts the level of the S&P 500's trajectory right in the middle of the indicated redzone forecast range.
We've already recapped the week's biggest market-moving headlines, but there was more going on during the week that was. Here's our summary of the major headlines we tracked during the week.
Monday, 24 April 2023
- Signs and portents for the U.S. economy:
- Bigger stimulus developing in China
- Positive growth signs in Eurozone:
- BOJ minions' new boss says wants much stronger inflation before considering changes to never-ending stimulus:
- ECB minions thinking they'd rather focus on climate change than inflation:
- Nasdaq underperforms on worries about tech earnings ahead
Tuesday, 25 April 2023
- Signs and portents for the U.S. economy:
- BOJ minions excited to keep never-ending stimulus alive, despite inflation:
- ECB minions say inflation of Eurozone food prices will slow later in 2023, getting excited about hiking rates again:
- Wall St ends lower as weak earnings fan fears of economic slowdown
Wednesday, 26 April 2023
- Signs and portents for the U.S. economy:
- Bigger trouble, stimulus developing in China:
- BOJ minions' new boss thinking about tweaking, keeping never-ending stimulus alive:
- Nasdaq outperforms as investors cheer Microsoft, Dow transports sink
Thursday, 27 April 2023
- Signs and portents for the U.S. economy:
- Fed minions trying to learn something from bank failures:
- Bigger trouble, stimulus developing in China:
- BOJ minions see more inflation, vow to keep never-ending stimulus alive for at least another 18 months:
- ECB minions thinking about changing rules for banks, encouraged to keep hike rates:
- Wall Street notches biggest gain in months, Treasury yields rise on solid earnings
Friday, 28 April 2023
- Signs and portents for the U.S. economy:
- Fed minions get wage inflation to worry about, on top of fixing bank system oversight:
- Bigger trouble, stimulus developing in China:
- Bigger trouble hits in Taiwan:
- Eurozone registers positive, near-zero growth:
- Wall St ends higher, posts weekly, monthly gains on solid earnings, Fed pause hopes
The CME Group's FedWatch Tool anticipates the Fed will hike the Federal Funds Rate by a quarter point to a target range of 5.00-5.25% at its upcoming meeting on 3 May (2023-Q2). After that, the FedWatch tool anticipates a series of quarter-point rate cuts starting from 20 September (2023-Q3) and continuing at six- to twelve-week intervals through the CME FedWatch tool's available forecast period, which extends through 25 September 2024 (2024-Q3).
The BEA's initial estimate for real GDP growth in 2023-Q1 is +1.1%, which was substantially below the Atlanta Fed's GDPNow tool 's projection of +2.5% for real GDP growth that we recorded last week. It was however closer, yet still below, the so-called Blue Chip consensus of +1.5%. The GDPNow tool has swung around to start looking forward again. As of 28 April 2023, it anticipates +1.7% real GDP growth for the currently playing out quarter of 2023-Q2.
For further details see:
The S&P 500 Rebounds With Developing Recession Coming Into View