In Week 3 of May 2017, the S&P 500 provided a small demonstration of what can happen to stock prices whenever investors shift their focus from one point of time in the future to another.
Because we've already discussed that "almost interesting" event, where investors partially shifted their forward-looking attention from 2017-Q2 to 2017-Q3, we'll simply note that the S&P rebounded in the latter part of the week as investors had reason to shift their focus back toward 2017-Q2, with stock prices behaving accordingly.
(Click on image to enlarge)
Stock prices aren't the only data that suggest that a partial shift in focus for how far forward in time investors are looking took place during Week 3 of May 2017. U.S. Treasury futures also communicated similar information, as Mike Shedlock observed:
The futures market is starting to question the June rate hike thesis. For its part, the bond market is behaving as if the Fed is hiking the economy into a recession. Here are some pictures.
June Rate Hike Odds
No Hike in June Odds
- Month ago – 51%
- Week Ago – 12.3%
- Yesterday – 21.5%
- Today – 35.4%
The CME Group provides this data through its FedWatch tool, which uses futures contracts for the Federal Funds Rate to divine the probability that the Fed will hike that particular interest rate by the various upcoming meeting dates of the Federal Reserve's Open Market Committee (FOMC). They've been providing that kind of insight from futures contracts since at least the last quarter of 2015.
We've been using dividend futures to do somewhat similar analysis, where the Fed has often had an outsized role in determining how far forward in time investors in the U.S. stock market focus their attention, where our dividend futures-based model can explain a good portion of why stock prices behave as they do whenever investors shift their forward looking attention.
At least, when that information is combined with the more significant market moving breaking news of the week....
Monday, 15 May 2017
- Oil prices build on gains on expectation of extended crude supply cut
- Wall Street rises with help from technology, financial, energy stocks
Tuesday, 16 May 2017
- U.S. factory output posts fastest growth in three years on autos
- Reports of large-scale Ford job cuts meet indifference on Wall Street
- S&P 500, Dow end session flat, tech boosts Nasdaq
- Shock and shrug: U.S. stocks brush off latest round of global threats
- Fewer than 10 U.S. organizations say were hit by ransomware attack: official
Wednesday, 17 May 2017
- In America's largest oilfield, whir of activity confounds OPEC
- Fed's Kashkari says don't use rate hikes to fight bubbles
- Ford to cut 1,400 white-collar jobs, shares tumble
- Wall Street tumbles as reform hopes fade with Trump crisis
Thursday, 18 May 2017
- Fed should keep raising interest rates, Mester says
- Wall Street rebounds after steepest selloff in months
Friday, 19 May 2017
- Wall St. opens higher as Trump slump eases
- St. Louis Fed's Bullard says expected rate hikes 'too aggressive'
- Oil at one-month high, supply-cut extension expected
- Wall St. ends off session highs after fresh Russia probe reports
For the week's major economic data points, be sure to check out Barry Ritholtz' succinct summary of the week's positives and negatives.
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