The S&P 500 Falls Off The Edge

What's happening with stock prices now is the "short and brutal path to sobriety" alternative we explained would come about if "investors have a reason to refocus a significant portion of their attention on 2022-Q2" in setting current day stock prices in our discussion demystifying the recent moves of the S&P 500.

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You cannot say you were not warned what would happen if that occurred, though we doubt anyone could predict the specific circumstances that succeeded in pushing the S&P 500 off the edge.

As for what triggered the new Lévy flight by prompting investors to shift their forward looking attention from 2022-Q3 inward toward what they expectd will happen during 2022-Q2, we can thank ZeroHedge's Tyler Durden for providing a succinct summary:

Ultra-hawkish FedSpeak (from them all) sent rate-hike expectations this week (with 50bps fully priced-in for May, and a 35% chance of a 75bps hike in June now)...

Here's how that change looks on the alternative futures spaghetti forecast chart where, for the first time ever, we've added a second, 'redder' forecast range to track where stock prices are most likely to head as investors focus upon 2022-Q2.

The key triggering event involving Fed Chair Jerome Powell's comments took place on Thursday, 21 April 2022, which went on to build downward momentum for investor expectations on Friday, 22 April 2022. Read all about it by following the appropriate links in our recap of the week's market moving headlines:

Monday, 18 April 2022

• Signs and portents for the U.S. economy:
  • Oil rises over 1% as Libya outages add to Russia supply fears
  • U.S. homebuilder sentiment drops to seven-month low amid surging mortgage rates
    • Soaring interest rates weigh on big bank mortgage loan growth
• Fed minion wants higher interest rates to address inflation than all the others:
  • Fed's Bullard wants to get rates up to 3.5% by year end
• Bigger stimulus developing in China:
  • China to step up financial support for industries hit by COVID outbreaks
  • China's supply chains must be stabilised, vice premier says
• BOJ minion concerned about value of currency:
  • BOJ Gov Kuroda: "recent sharp yen weakening" could impact firms' profit plans
• Wall St ends lower as investors await further earnings cues

Tuesday, 19 April 2022

• Signs and portents for the U.S. economy:
  • Oil prices fall 5% after IMF cuts growth outlook
    • IMF cuts global growth forecast due to "seismic waves" from Russia's war in Ukraine
  • U.S. single-family starts tumble; construction backlog at record high
• Fed minions set lower expectations for rate hikes:
  • Fed's Evans sees year-end rates at 2.25%-2.5%, and then likely higher
    • Fed's Evans: comfortable with two 50 bps point increases
  • Fed's Bostic says slowing global growth a reason for Fed to be "cautious" - CNBC
  • A jumbo 75-basis-point rate hike? Fed's Bullard isn't ruling is out
• Bigger trouble, stimulus developing in China:
  • China to keep 2022 crude steel output lower than last year's level
  • China likely to lower benchmark lending rates after RRR cut - Reuters poll
  • China urges policies to support catering, retail sectors
• Japanese finance minion getting really worried about falling yen:
  • Japan Finance Minister makes most explicit warning yet against yen slump, economic fallout
    • Explainer-What would Japan's currency intervention to combat a weak yen look like?
• Wall Street advances on earnings optimism, dovish rate rise remarks

Wednesday, 20 April 2022

• Signs and portents for the U.S. economy:
  • U.S. firms beset by worker shortages and high inflation, Fed survey shows
  • U.S. mortgage interest rates reach a 12 year high, demand falters
    • U.S. existing home sales fall further as house prices hit record high
  • Oil slips nearly 1% on broader demand concerns
    • U.S. crude stockpiles slump as export surge to more than 2-yr high - EIA
• Fed minions lock in expectations for half point rate hike, claim inflation will fall to 2% in five years:
  • Fed's Daly: Case for half-percentage-point hike in May is 'complete'
    • Fed's Daly sees U.S. inflation at 2% goal in five years
    • Raising Fed's policy rate to 2.5% by end of 2022 is 'prudent,' Daly says
  • Fed's Evans repeats view he sees interest rates at neutral rate by year end
• Bigger trouble, stimulus developing in China:
  • China imports 13% less crude oil from Saudi in March, 14% less from Russia -customs
  • Analysis-Wealth shock: property bust in small Chinese cities rattles households
  • IMF's Georgieva says China should stimulate consumption as lockdowns mount
  • China to accelerate VAT credit rebates for small firms - finance ministry
• Bigger inflation developing in Canada, Eurozone, Japan:
  • Canada inflation surges more than expected in March, hitting 31-year high
    • Multiple inflation pressures complicate Bank of Canada's soft landing goal
  • German producer prices at record high amid Ukraine war
  • Japan raises gasoline subsidy to maximum of 25 yen per litre
• Wall Street mixed as Nasdaq drags, bond yields dip after recent surge
  • Nasdaq declines as Netflix earnings send shudder through tech

Thursday, 21 April 2022

• Signs and portents for the U.S. economy:
  • Oil edges higher on concerns over Russia, Libya supply disruption
  • U.S. weekly jobless claims fall; unemployment rolls smallest in 52 years
• Fed minions signal willingness for bigger rate hikes:
  • Fed's Powell, half-point hike in view, completes hawkish pivot
    • Zero to neutral in 9 months marks a defining pivot for Fed, Powell
  • Hiking Fed policy rate beyond 2.5% is 'open question,' says Daly
• Bigger trouble developing in China, Eurozone:
  • A prolonged China slowdown raises risks for global economy, IMF chief says
  • German exports to Russia slump by 57.5% in March
• ECB minions thinking they may need to stop stimulating Eurozone economy:
  • ECB's de Guindos backs ending bond purchases in July
    • Euro zone March inflation revised slightly down, still at record
• Wall St ends down as Powell plops 50 bps rate hike on table

Friday, 22 April 2022

• Signs and portents for the U.S. economy:
  • Oil extends losses on growth concerns and Shanghai lockdown
  • U.S. services sector activity eases in April - survey
  • Yellen says U.S. economy being 'resilient', no recession in sight
• Fed minions shift investor focus to near term with prospect of bigger rate hikes:
  • Fed seen going big and then bigger on rate hikes ahead
    • Fed's Mester wants 'methodical' rate hikes, not giant ones
• Bigger trouble developing in South Korea, Eurozone, Brazil, Canada, UK:
  • S.Korea first-quarter growth likely slowed sharply by COVID curbs
  • Two-speed euro zone economy as services shine, factories struggle -PMI
    • French Finance Minister: we are entering "new era" of higher inflation
    • Exclusive-Germany cuts 2022 economic growth forecast to 2.2% - source
  • Brazil's economy stagnant, growth freeze to continue in 2023
  • Canada March producer prices up 4.0%, biggest monthly gain in 66 years
  • Slowdown warnings flash for UK economy as inflation surges
• Bigger stimulus developing in China:
  • China central bank pledges to support economy amid crippling COVID outbreaks
• BOJ minions getting into deeper trouble with yen:
  • BOJ's Kuroda vows to 'persistently' continue aggressive monetary easing
  • BOJ should revise policy if key bond yield keeps rising, economists say
  • Japan March consumer prices rise at fastest pace in over 2 years
  • Japan, U.S. likely discussed joint yen-buying intervention - media
• ECB minions told to toe the party line:
  • Lagarde tells ECB policymakers to hold back criticism, leaks - sources
• Wall St tumbles as investors fret on weak earnings, rate hikes
  • Bond/Stock Bloodbath Leads To Worst Start To A Year On Record

The CME Group's FedWatch Tool projects the Fed will hike rates by a half point in May (2022-Q2) and by another three-quarter point hike in June (2022-Q2). That would be followed by a half point rate hike in July (2022-Q3) and a quarter point rate hike in September (2022-Q3). 2022-Q4 would see a half point rate hike in November, and a quarter point rate hike in December 2022.

Looking at the Atlanta Fed's GDPNow tool, we find it anticipates the first quarter of 2022 saw 1.3% of real GDP growth. The BEA's first estimate of 2022-Q1 GDP will be reported later this week, so the GDPNow tool will soon refocus on 2022-Q2's GDP growth rate.

Later this week, we'll update our ongoing series on the day-to-day volatility of S&P 500 stock prices. Because it may become highly relevant in the near future.