Shift in Expectations Boosts S&P 500 in Week 2 of September 2017

U.S. stock prices during the second week of September 2017 were largely driven by two news events:

1. Actual damage from Hurricane Irma in Florida proved to be considerably less than had been projected.
2. Inflation data put rate hikes back onto the Federal Reserve's table in the near future.

By "near future", the likelihood that the Fed would next hike short term U.S. interest rates went from last week's zero percent chance of happening anytime soon to a greater than 50% probability that they will act to make it happen in December 2017, where the CME Group's FedWatch Tool indicates that the market expects no change in rates to be announced at the Fed's meeting this week.

The effect of this new information on stock prices can be seen in our alternative futures "spaghetti" chart..

With investors shifting their forward-looking focus from 2018-Q2 to 2017-Q4, the S&P 500 rose to reach a record high during Week 2 of September 2017, although right now, the data suggests that investors are splitting their attention between 2017-Q4 and 2018-Q2, where stock prices are reaching toward the very top of the echo effect-adjusted range we indicated for 2018-Q2 just last week.

The thing to pay attention to this week that might more fully cement investor focus onto 2017-Q4 is the statement that will be issued by the Federal Reserve's Federal Open Market Comittee at the conclusion of its upcoming meeting on Wednesday, 20 September 2017, as well as the statements of individual Fed officials in the following days.

Looking backwards, here are the more signficant market moving headlines that caught our attention during Week 2 of September 2017.

Monday, 11 September 2017

• Oil rises as U.S. refineries restart, Irma wanes
• S&P 500 chalks up record high as fear gives way

Tuesday, 12 September 2017

• Wall Street ends at record high, led by banks; Apple weighs

Wednesday, 13 September 2017

• Oil rises as IEA forecast overshadows U.S. crude build
• Wall Street hits record high - without help from Apple

Thursday, 14 September 2017

• Wall St. set to open lower as odds of rate hike increase
• U.S. oil hits $50/barrel, sterling jumps; Dow at new high
• Dow strikes record high as broader market weakens

Friday, 15 September 2017

• Oil holds near five-month high in most bullish week since July
• Hurricane Harvey slams U.S. retail sales, industrial output
• Wall Street hits record highs, S&P 500 pierces 2,500

Meanwhile, Barry Ritholtz succinctly summarized the positives and negatives for Week 2 of September 2017.