2023-07-17 15:56:00 ET
Summary
- Inflation came in lower than expected, which increased the likelihood the Federal Reserve's series of rate hikes that began in March 2022 is now much nearer its end.
- The CME Group's FedWatch Tool anticipates the Federal Reserve will hike the Federal Funds Rate by just a quarter point to a target range of 5.25-5.50% when it meets on 26 July.
- The FedWatch Tool goes on to indicate investors expect the Fed to pursue a series of quarter-point rate cuts at six- to twelve-week intervals during 2024.
A dovish inflation report lifted the S&P 500 (SPX) during the trading week ending on Friday, 14 July 2023. The index rose 2.4% from the previous week's close to end the week at 4505.42 .
Inflation came in lower than expected, which increased the likelihood the Federal Reserve's series of rate hikes that began in March 2022 is now much nearer its end.
That news, combined with improving expectations for future dividends, boosted the outlook for the S&P 500. The dividend futures-based model adapted to these changes by shifting the potential trajectories for the S&P 500 upward. The latest update to the alternative futures chart shows the result of these changes to the model's projected future.
It also shows the actual trajectory of the S&P 500 is coming to the end of the redzone forecast range we introduced three months ago. As it does, it appears set to track along with the alternative trajectories for either 2023-Q4 or 2024-Q1. Assuming it does, it will represent a shift in the forward-looking focus of investors away from the current quarter of 2023-Q3 toward a more distant time horizon.
Although there's little difference in the level of stock prices projected between the two more distant future quarters, we think it's more likely investors will focus on 2023-Q4 because it coincides with the decisions that will determine when the peak for the Fed's rate hikes will occur.
That can be seen in how those expectations changed during the past week. The CME Group's FedWatch Tool anticipates the Federal Reserve will hike the Federal Funds Rate by just a quarter point to a target range of 5.25-5.50% when it meets on 26 July (2023-Q3). After that, the FedWatch Tool now gives better than 50% odds the Fed's series of rate hikes that began in March 2022 will see just one more at its 1 November (2023-Q4) meeting, before potentially reversing to reduce the Federal Funds Rate as early as 13 December (2023-Q4). The FedWatch Tool goes on to indicate investors expect the Fed to pursue a series of quarter-point rate cuts at six- to twelve-week intervals during 2024.
There was more information that helped set investor expectations during the second week of July 2023. Here's our summary of the week's market-moving headlines.
Monday, 10 July 2023
- Signs and portents for the U.S. economy:
- Bigger trouble, stimulus developing in China:
- BOJ officials excited to have inflation as a problem:
- Nasdaq, S&P, Dow snap three-day losing streaks ahead of CPI, bank earnings this week
Tuesday, 11 July 2023
- Signs and portents for the U.S. economy:
- Fed officials say they're excited to keep hiking rates:
- Bigger stimulus slowly rolling out in China:
- Wall St ends up ahead of CPI; JPMorgan, financial shares gain
Wednesday, 12 July 2023
- Signs and portents for the U.S. economy:
- Fed officials have a new tool for handling bank runs, think their job in reducing inflation may or may not be getting easier:
- Bigger trouble developing in China:
- BOJ officials getting mixed signals about inflation:
- Nasdaq leads Wall St to higher close as CPI report lifts sentiment
Thursday, 13 July 2023
- Signs and portents for the U.S. economy:
- Fed officials say they only want two more rate hikes, afraid of more bank failures:
- Bigger trouble developing in China:
- ECB officials can't hide their excitement for hiking rates:
- Wall St ends up, extends recent gains on cooling US inflation
Friday, 14 July 2023
- Signs and portents for the U.S. economy:
- Fed officials looking forward to planned rate hikes:
- Bigger stimulus developing in China:
- BOJ officials to rethink what's in their toolbox:
- Nasdaq, S&P end in the red, Dow ekes out gains as market takes a breather
The Atlanta Fed's GDPNow tool estimate of the real GDP growth rate for the current quarter of 2023-Q2 increased to +2.3% from the forecast +2.1% growth rate recorded a week earlier.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
The S&P 500 Rises As Inflation Data, Fed Put End Of Rate Hikes In Sight