Bearish Inflation Reports Prompt S&P 500 Retreat From Record Highs

After breaking through the 5,000 milestone to set a new record high last week, the S&P 500 (Index: SPX) retreated from that lofty level. The index dropped 0.4% from last week's close to end the trading week at 5,005.57.

You wouldn't think it from that description, but the S&P 500 did manage to eke out a new record high of 5,029.73 on Thursday, 15 February 2024. But the bigger news of the week was the stock market's response to two reports about inflation in the U.S. The first report on the Consumer Price Index prompted a 1.4% drop on Tuesday, 13 February 2024. The second report on the Producer Price Index sparked a half percent decline on Friday, 16 February 2024.

Both reports indicated higher-than-expected inflation to start 2024. Together, that new information affected investor expectations for the timing of when the Federal Reserve will begin cutting interest rates in 2024. The CME Group's FedWatch Tool's projections of when the Fed is expected to start a series of rate cuts has shifted. It now projects the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 12 June 2024 (2024-Q2), six weeks later than previously anticipated.

Here is this week's update of the dividend futures-based model's alternative futures chart.

Alternative Futures - S&P 500 - 2024Q1 - Standard Model (m=+1.5 from 9 March 2023) - Snapshot on 16 Feb 2024

Looking forward, we're coming up on a several week long period where the echoes of past volatility in stock prices affect the dividend futures-based model's projections. This situation arises because of the model's use of historic stock prices as the base reference points from which its projections are developed. The next update for the chart will feature a new redzone forecast range to account for this echo effect.

In the meantime, here are the market-moving headlines for the week that was.

Monday, 12 February 2024

Tuesday, 13 February 2024

Wednesday, 14 February 2024

Thursday, 15 February 2024

Friday, 16 February 2024

The Atlanta Fed's GDPNow tool's latest estimate of real GDP growth for the first quarter of 2024 (2024-Q1) declined to +2.9% from last week's estimate of +3.4%.

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