S&P 500 Potentially Readies To Alter Course As US Rate Cut Expections Change

It was a good week for Wall Street's bulls seeking to navigate their way through the random onset of new information in the markets. The index rose 1.6% above where it closed the previous week, closing at 5,431.60 on Friday, 14 June 2024. The index even set new record highs during the week, with 13 June 2024's 5,433.74 closing value now representing the S&P 500's highest close ever.

As for the market moving news the week held, a benign inflation report on Wednesday, 12 June 2024 was perhaps the most important story for investors in the U.S. stock market. After the report, expectations for when the Federal Reserve might begin cutting interest rates changed. The CME Group's FedWatch Tool now forecasts the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% only until 18 September (2024-Q3), 12 weeks earlier than what the tool projected a week ago. The tool anticipates the Fed will start a series of 0.25% rate cuts on that date, which will occur at 6-12 week intervals well into 2025 based upon how expectations changed in the past week.

The latest update of the alternative futures chart shows the trajectory of the S&P 500 running at the low end of the range that would be expected for investors focusing on 2024-Q4 in setting current day stock prices.

(Click on image to enlarge)

Alternative Futures - S&P 500 - 2024Q2 - Standard Model (m=+1.5 from 9 March 2023) - Snapshot on 14 Jun 2024

That relative position suggests a real potential upside for the S&P 500. Should investors reset their forward-looking focus toward 2024-Q3 to coincide with the change in the FedWatch Tool's projected timing for when the Fed will start cutting interest rates in the U.S., the stage would be set for the index to jump to new record highs.

But will it work out that way? As we've seen in the past week, expectations can change significantly with little advance warning thanks to the random onset of new information. Much like the market-moving headlines of the week that was.

Monday, 10 June 2024

Tuesday, 11 June 2024

Wednesday, 12 June 2024

Thursday, 13 June 2024

Friday, 14 June 2024

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