A Week of Well-Telegraphed Volatility for the S&P 500

We had a lot of fun watching the S&P 500 (SPX) during the first week of May 2022. In case you missed it, the index swung through relatively rare 3%+ changes in its daily value.

And all of it was well telegraphed! Or rather, it was consistent with how the dividend futures-based model says the index would act given the new information investors have had to absorb in recent weeks. Here's a quick recap of our relevant coverage:

• The "Mystifying" Moves of the S&P 500
• The S&P 500 on the Edge
• The S&P 500 Falls Off the Edge
• Increasing Day-to-Day Volatility for the S&P 500
• Third Lévy Flight of 2022 Sends S&P 500 Much Lower

That last post contains updates addressing the specific causes of last week's wild market action, which added two more Lévy flight events to 2022's tally! Here's how they look on the latest update to the alternative futures spaghetti forecast chart:

(Click on image to enlarge)

Through Friday, 6 May 2022, we find investors are mainly focusing on the current quarter of 2022-Q2 in setting current day stock prices. Investors are betting the Fed will be compelled to hike interest rates by a bigger amount before the end of the quarter than they've been willing to publicly commit, completely reversing the expectation the Fed set on Wednesday, 4 May 2022 that 2022-Q2 would not see such a larger hike.

If you've been following the S&P 500 chaos series, you already know the importance of following the random onset of new, market-moving information. Although we've discussed the specific triggers for last week's market volatility via updates to last Monday's regular entry to the series, here's a more comprehensive picture of what was new and noteworthy during the week that was.

Monday, 2 May 2022

• Signs and portents for the U.S. economy:
  • U.S. manufacturing activity slowest in more than 1-1/2 years as workers quit
• Fed minions want U.S. housing market to "cool it":
  • The Fed wants to cool the U.S. housing market. Here's what that feels like
• Bigger trouble developing in the Eurozone, Japan, China, Mexico:
  • Euro zone factory output growth stalled in April - PMI
    • German retail sales unexpectedly fall in March
    • Supply disruption, weaker demand cloud outlook for German manufacturers - PMI
  • Japan's April factory activity expands at slower rate -PMI
  • China April factory activity contracts at steeper pace as lockdowns bite
  • Mexico's factories contract for 26th straight month, inflation near four-year high
• Wall Street ends higher amid topsy-turvy trade before Fed meeting
  • U.S. Treasury 10-year yield hits 3% for first time in more than three years
    • Bond investors go for safety, brace for ultra-hawkish Fed

Tuesday, 3 May 2022

• Signs and portents for the U.S. economy:
  • U.S. job openings, resignations hit record highs in March
• Bigger trouble developing in China:
  • Hong Kong Q1 GDP shrinks more than expected on COVID curbs
  • Snarled-up ports point to worsening global supply chain woes - report
• Bigger inflation developing in South Korea:
  • S.Korea inflation hits 13-yr high, fans rate hike expectations
• Central bankers getting serious about hiking rates to combat inflation:
  • Australia's central bank hikes interest rates, flags more to come
  • Czech central bank seen raising main rate to 5.50%, highest since 1999: Reuters poll
  • ECB may hike rates in July to combat extreme inflation -Schnabel
    • Analysis-Barely visible wage growth already a trigger for ECB
• Wall Street ends higher after choppy session ahead of Fed
  • U.S. junk bonds drop to lowest in over two years ahead of Fed meeting

Wednesday, 4 May 2022

• Signs and portents for the U.S. economy:
  • Record high U.S. job openings, resignations likely to fuel wage inflation
  • From coffee to ketchup, retailers seek price 'shields' as inflation runs riot
  • U.S. service sector slows; input prices measure at record high - ISM survey
    • Inflation pushing more borrowers with low FICO scores to default -study
  • Robust imports push U.S. trade deficit to record high in March
• Fed hikes rates by half percentage point, starts balance sheet reduction June 1
  • Rrrrrrb: Quantitative Tightening Begins June 1, Capped Initially At $47.5BN And Growing To $95BN
  • Fed's Powell: 75 basis point rate hike not being 'actively considered'
  • Instant View: Fed hikes 50 bp, Powell tamps down speculation of 75 bp hike
• Growth signs in Eurozone:
  • Euro zone business growth got boost from reopened services in April - PMI
• Central bank minions hiking rates to combat inflation:
  • India raises rates at surprise monetary policy meeting, bond yields jump
• Wall Street rallies to end higher after Fed's interest rate hike
  • Stocks, Bonds, Gold, & Crypto Rip After Powell Takes 75bps Hike 'Off The Table'

Thursday, 5 May 2022

• Signs and portents for the U.S. economy:
  • U.S. weekly jobless claims rise; productivity plunges at fastest pace in 74 years
  • Oil steadies near $110/bbl as strong dollar offsets Russian oil ban
• Bigger trouble developing in China:
  • China's services activity falls at second sharpest rate on record - Caixin PMI
• Bigger stimulus developing in China:
  • China will roll out more support measures to stabilise jobs - cabinet
• Central bank minions hiking rates to combat inflation:
  • Czech central bank surprises with big rate hike, says more may come
  • Bank of England raises rates to 1% despite looming recession risk
    • BoE flags risk of recession and 10% inflation as it raises rates again
  • Cash handouts to Danes could worsen inflation, central banker warns
  • Norway keeps rates on hold, remains on track for June hike
  • Economists expect higher rate hikes after RBI's hike to tame inflation
• ECB minions standing by to take action to combat inflation:
  • ECB sees sequence of moves to lift rates into positive territory: Lane
  • ECB should not raise rates in July before Q2 GDP data: Panetta
• Wall Street slumps as investors fear bigger Fed rate hikes
  • U.S. rate futures price in 75% chance of 75 bps Fed hike in June

Friday, 6 May 2022

• Signs and portents for the U.S. economy:
  • Manufacturing drives strong U.S. hiring; wage growth cools
• Fed minion try to shape expectations for lesser rate hikes, former Fed minions call for bigger rate hikes:
  • Fed's Kashkari Op-Ed: Policy Has Tightened a Lot. Is It Enough?
    • Fed's Kashkari says supply chain progress key to avoiding recession
  • Former Fed policymakers call for sharp U.S. rate hikes, warn of recession
• Bigger trouble developing in the Eurozone, China:
  • German industrial output falls more than expected in March
  • China's trade seen faltering in April as COVID curbs hit output: Reuters poll
    • Japanese factories in Shanghai struggling to resume operations, survey shows
• Bigger stimulus developing in China:
  • China central bank to launch relending facility to aid transport, logistics
• ECB minions still thinking about doing something to combat inflation:
  • ECB must quickly raise key rates, says head of Germany's Ifo institute
  • ECB must keep inflation expectations at bay - Elderson
  • ECB rate should be back in positive territory by year end: Villeroy
• Wall St falls as rate hike fears overshadow strong jobs data
  • Wild swing roil markets as hawkish Fed unleashes volatility

The CME Group's FedWatch Tool projects the Fed will hike rates by three-quarters of a point in June (2022-Q2) and by another half point in July (2022-Q3), followed by a quarter point hike in September (2022-Q3). The prospects for a larger-than-half-point rate hike in June is why investors are now mainly focusing their attention on 2022-Q2 in setting current day stock prices.

The Atlanta Fed's GDPNow tool's is forecasting 2022-Q2 will rebound with a positive 2.3% real growth rate following 2022-Q1's negative growth.