Image credit: Bing Image Creator. Prompt: "A colorful painting of a growling grizzly bear in the style of Kelsey Rowland".

The scary season for October 2023 is living up to its moniker for investors.

The S&P 500 (Index: SPX) fell 2.5% during the trading week ending on Friday, 27 October 2023. The index closed the week at 4117.37.

That puts the index 14.2% below its all-time record high peak from 3 January 2022. It also represents a retreat of 10.3% from the highest value the S&P 500 reached during the current year, when it closed at 4588.96 on 31 July 2023. The decline in stock prices in the three months since now qualifies as a correction.

While we cannot yet say that order has broken down for the S&P 500, the index is just a little over a 1.5% decline in value away from crossing the threshold where that scenario becomes more than an academic question. While that's happening, the trajectory of the index remains below the redzone forecast range shown on the alternative futures chart, which raises a new possibility: the index may be undergoing a regime change.

By regime change, we're referring to a change in the market environment that alters the multiplier of the dividend futures-based model. While the multiplier can remain nearly constant for prolonged periods of time, it can and has changed suddenly with little to no warning. The projections shown on the alternative futures chart reflect the value of the multipler, m, being equal to +1.5, which has been the case since 9 March 2023.

(Click on image to enlarge)

In breaking and staying below the redzone forecast range, it suggests the value of the multiplier has increased. However, we'll need more trading data before we can determine how high. Since the breakout indicating the old market regime no longer applies occurred on 19 October 2023, we're looking at market-moving events occurring on or near that date as the potential trigger for the regime change. At this time, we think the spike in the 10-year Treasury up toward a 5% yield on that date is the leading candidate for it.

The trajectory of stock prices during the week that was were affected by more than that event from last week. Here are the market-moving headlines we noted for the last full trading week of October 2023.

Monday, 23 October 2023

• Signs and portents for the U.S. economy:
  • Ten-year U.S. Treasury yield hits 5%
  • BlackRock warns of US earnings stagnation, remains bullish on AI, Japan
• Fed hawks, Fed doves: What U.S. central bankers have been saying
• Bigger stimulus developing in China:
  • China to bolster economic recovery and curb risks, central bank head says
• Bigger trouble developing in Canada:
  • Bank of Canada to leave rates on hold as economy stalls, analysts say
• BOJ minions may be forced to "tweak" never-ending stimulus again:
  • Rising yields may pressure BOJ to consider raising newly set cap
• Bigger trouble developing in the Eurozone:
  • German economy likely shrunk in Q3 - Bundesbank
• Nasdaq, S&P, Dow end mixed as bond market volatility weighs; US10Y retreats from 5%

Tuesday, 24 October 2023

• Signs and portents for the U.S. economy:
  • Oil drops for third straight session on weak European economic data
• Bigger stimulus developing in China:
  • China set to approve $137 billion in extra sovereign debt on Tuesday -sources
  • China's Xi makes first known visit to central bank -sources
    • Analysis-China to choose fiscal muscle over big reforms to revive economy
  • Hong Kong may seek to kick-start ailing property market in policy address
• Bigger trouble, continued stimulus developing in Japan:
  • Japan's factory, service sector activity under pressure in Oct - PMI
  • Japan to extend until April 2024 subsidies to curb fuel costs - stimulus package draft
• BOJ minions act to keep never-ending stimulus alive despite inflation:
  • Bank of Japan to conduct unscheduled bond-buying operation
  • Japan's price trend gauge hits record, signals broadening inflation
• Bigger trouble developing in the Eurozone:
  • Euro zone October PMI at near 3-year low, stirring recession worries
  • German business activity slump suggests recession 'well underway' -PMI
  • Euro zone lenders and borrowers shun credit as rates climb - ECB
• Wall Street surges to close higher, powered by upbeat earnings, guidance
  • Earnings misses are being punished a lot more than beats are being rewarded
  • Alphabet stock falls after 'classic mixed bag' Q3 but analysts remain positive on growth
  • Microsoft jumps as Q1 results top expectations, aided by Azure growth

Wednesday, 25 October 2023

• Signs and portents for the U.S. economy:
  • U.S mortgage rates soar to highest in more than 23 years
  • Oil prices settle up about 2% on worries about Middle East
  • US new home sales scale 19-month high as median price drops
• Fed minions thinking about lowering debit card fees:
  • US Fed proposes shrinking fees banks charge on debit card transactions
• Bigger stimulus, trouble developing in China:
  • China Kicks Fiscal Stimulus Into Overdrive With Deficit-Busting 1 Trillion Yuan In New Debt
    • China's new bonds to help economic recovery, official says, as budget deficit rises
    • China's central bank structural policy tools rise to $959 billion at end-Sept
  • Exclusive-China's cabinet curbs debt growth in 12 "high risk" regions - sources
• Bigger trouble developing in the Eurozone:
  • Weak euro zone lending adds to recession fears
• S&P 500, Nasdaq end sharply lower as Alphabet disappoints, Treasury yields bounce

Thursday, 26 October 2023

• Signs and portents for the U.S. economy:
  • US economic growth accelerates in third quarter
    • Yellen says US GDP is a 'good strong number', may keep bond yields higher
    • Yellen: Possible long-term yields will come down, but 'no one knows for sure'
  • Oil falls after U.S. stockpiles climb, Middle East tensions in focus
• Bigger trouble developing in Japan?
  • Japan Finance Minister says he is watching yen moves with 'sense of urgency'
    • Yen on intervention watch after drop to 150 per dollar, greenback strong
    • Explainer-What would Japanese intervention to boost the weak yen look like?
• Economists think BOJ minions thinking about ending never-ending stimulus next year:
  • BOJ to end negative interest rates in 2024, more economists say- Reuters poll
• ECB minions swing into inaction:
  • ECB pauses record streak of rate hikes
    • ECB holds rates, signals steady hand as economy stumbles
    • Lagarde comments at ECB press conference
• Wall Street ends lower on mixed earnings, robust data
  • Analysis-Soaring Treasury yields threaten long-term performance of US stocks

Friday, 27 October 2023

• Signs and portents for the U.S. economy:
  • Oil prices up 3% on worries about Middle East supplies
  • Inflation to dog world economy next year, postponing rate cuts
• Fed seen keeping rates on hold well into next year
  • Higher-for-longer rates will trigger domino effect on defaults - Janus Henderson
• Bigger stimulus getting traction in China:
  • China's Sept industrial profits extend gains helped by policy support
• BOJ minions get data that won't help them keep never-ending stimulus alive:
  • Core inflation in Japan's capital unexpectedly accelerates, BOJ in spotlight
  • Japan's Matsuno expects BOJ to coordinate with govt on monetary policy
• ECB minions looking forward to having elevated inflation for another year:
  • ECB survey sees inflation back near target by 2025
• Nasdaq, S&P, Dow fall more than 2% each for the week, primarily on big tech weakness

The CME Group's FedWatch Tool projects the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% through May (2024-Q2), unchanged from last week. Starting from 12 June (2024-Q2), investors expect deteriorating economic conditions will force the Fed to start a series of quarter point rate cuts at six-to-twelve-week intervals through the end of 2024.

The Atlanta Fed's GDPNow tool's final forecast of annualized real growth rate during 2023-Q3 of +5.4% was respectfully close to the BEA's initial estimate of +4.9% for the quarter. The Atlanta Fed's first estimate of real GDP growth for the current quarter of 2023-Q4 is +2.3%.

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