The S&P 500 (SPX) closed out August 2024 just 18.8 points below its all-time record high set on 16 July 2024. But after the first week of September 2024, the index lost 240 points to end the Labor Day-holiday shortened trading week at 5,408.42. The index is now 4.6% below its record high after experiencing its worst week in the last year and a half.

While the S&P 500 declined on each of the four trading days of the trading week that was, its biggest declines came on two of those days: Tuesday, 3 September 2024 and 6 September 2024. On Tuesday, the market's declines were led by AI and semiconductor stocks as investors sold off their holdings as the sector's growth prospects are showing signs of fading.

By contrast, Friday's decline can be traced to investor reaction to a disappointing jobs report, corresponding to worse than previously expected growth prospects for the U.S. economy.

The news of the week is such that investors shifted their forward-looking focus toward the more distant future quarter of 2025-Q2. That shift can be seen on the latest update of the dividend futures-based model's alternative futures chart. The trajectory of the S&P 500 now falls in the middle of the chart's latest redzone forecast range.

This forecast range is anchored at 9 August 2024, when investors were focused on the distant future quarter of 2025-Q2 in setting stock prices. The future end of the forecast range is linked to the dividend futures model's projection of the level of the S&P 500 on 4 November 2024, specifically its projection associated with investors focusing their attention on the nearer term future quarter of 2024-Q4 in setting the level of the index.

In setting the redzone forecast range up this way, we assumed investors would transition their forward-looking attention from 2025-Q2 to 2024-Q4 during the period it runs. That period bridges across a period in which the raw projections of the dividend futures-based model are affected by the echoes of past volatility, which arises because the model uses historic stock prices as the base reference points from which it projections are made.

How we set up the redzone forecast range is relevant because that's how we can determine how far forward in time investors have shifted their attention as they set the level of the index. Less than a month into the period the redzone forecast range runs, finding the level of the S&P 500 in the middle of the range at this point of time is consistent with investors shifting their focus back to the more distant future quarter of 2025-Q2, similar to how they were focusing on that particular investment horizon in early August 2024.

According to the CME Group's FedWatch Tool's latest projections, the Federal Funds Rate has more than 50% probability of being in a target range of 3.00-3.25% at that point of time. 2025-Q2 is also about when the pace of the Fed's anticipated upcoming series of rate cuts is expected to start slowing.

That observation brings us to what may be investors' main motivation for looking so far out into the future. How low will interest rates go?

The answer to that question isn't in the past week's market-moving headlines, which are tracking the nearer term questions of how big they'll be in light of the evidence the market's growth impulses are slowing....

Tuesday, 3 September 2024

• Signs and portents for the U.S. economy:
  • Oil falls as Chinese demand concerns overshadow Libyan export halt
    • US gasoline slumps to near 3-year low on end of driving season, oil slump
  • US manufacturing mired in weakness; construction spending falls
• Fed minions agree: full steam ahead for rate cuts!
  • Fed policymakers agree on need for rate cuts, but their reasons vary
  • US housing inflation likely to fall in year ahead, Fed paper says
• Bigger trouble developing in China:
  • New unproductive forces: the Chinese youth owning their unemployment
• Bigger trouble developing more slowly in Japan:
  • Japan's factory activity contracts at milder pace, PMI shows
• Bank of Korea looking to get in on rate cut action:
  • South Korea inflation slows to 3-1/2-year low, backs case for imminent rate cut
• Bigger trouble developing in Eurozone:
  • Euro zone factories stuck in a rut as Asia shows tentative signs of recovery
    • Downturn in German manufacturing accelerates, PMI shows
• ECB minions not sure how to deal with Eurozone economy downturn:
  • ECB policymakers at odds over downturn's impact, sources say
• U.S. stocks tumble as September starts, investors cool on chips
  • Nvidia, Intel, AMD lead semiconductor plunge to start September
    • Nvidia gets subpoena from US DoJ, Bloomberg News reports
  • Nasdaq falls 3%, S&P, Dow finish lower as September trade kicks off with growth worries

Wednesday, 4 September 2024

• Signs and portents for the U.S. economy:
  • Oil prices rebound after extended tumble, as OPEC+ mulls delay to output increase
  • US job openings hit 3-1/2-year low as labor market eases
  • Kroger CEO pins price increases on rising costs at trial
• Fed minions thinking about how big this month's rate cut should be:
  • Fed rate-cut size this month to hinge on job market health
  • Fed's Bostic warns against keeping restrictive policy stance for too long
• Bigger trouble developing in China:
  • China's services activity expansion slows in August, Caixin PMI shows
• BOJ minions see slow growth signs:
  • Japan's service activity extends gains in Aug, PMI shows
• Eurozone economy got boost from Olympics:
  • Euro zone August business activity gets Olympic lift, PMI shows
• S&P, Nasdaq end lower following seesaw session centered on the slowing U.S. economy
  • Wall Street ends slightly down after weak labor market data, dovish Fed comments

Thursday, 5 September 2024

• Signs and portents for the U.S. economy:
  • US economy is slowing, but still has momentum, former official says
  • Crude oil rally fizzles as demand worries offset big U.S. storage withdrawal, OPEC delay
    • OPEC+ agrees to delay October oil output hike for two months
• Fed minions starting to get really worried about U.S. job market:
  • Fed's Daly says rate cuts needed to keep labor market healthy
  • Fed seeks feedback on emergency lending operations
• Bigger trouble developing in China:
  • China urges US to 'immediately' lift all tariffs on Chinese goods
• BOJ minions see unwelcome inflation signs:
  • Japan inflation-adjusted wages rise for two straight months in July
• ECB minions getting excited for more rate cuts:
  • ECB to cut rates next week and December; shallower reductions in 2025: Reuters poll
• Nasdaq ends higher, S&P, Dow fall ahead of pivotal August jobs report

Friday, 6 September 2024

• Signs and portents for the U.S. economy:
  • US job growth misses expectations in August
• Fed minions expected to deliver bigger rate cut after August jobs report, starting to worry about recession:
  • Fed seen delivering upsized rate cut as US job growth cools
    • Fed's Williams says time has arrived to start rate cuts
    • Fed's Waller says it's time to lower rates, open to larger cuts
  • Chicago Fed President Goolsbee voices concern about risks of recession rising
• BOJ minions not sure what to do about the data they're getting:
  • Japan consumer spending barely grows, complicates BOJ's rate hike plan
• S&P slumps to worst week in over 1-1/2 years amid September blues, growth concerns
  • Nasdaq ends down 2%, S&P, Dow drop as growth concerns linger after mixed jobs report

The CME Group's FedWatch Tool anticipates the Fed will hold the Federal Funds Rate steady in its current target range of 5.25-5.50% until next week. On Wednesday, 18 September (2024-Q3), the Fed is expected to start a series of 0.25%-0.50% rate cuts that will occur at six-week intervals well into 2025 with an immediate 0.25% cut.

The Atlanta Fed's GDPNow tool's projection of the real GDP growth rate for the current quarter of 2024-Q3 dropped to +2.1% from the previous week's forecast of +2.5% growth.

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