The S&P 500 Dances To The Fed's Song

The level of the S&P 500 (Index: SPX) continues to react to news affecting investor expectations of how the Fed will be setting interest rates in upcoming months. The index rose 1.1% from the close of trading during the previous week to close the week ending 2 December 2022 at 4,071.70.

During the week, evidence supporting the hypothesis that investors are in the process of transitioning their forward-looking attention from the current quarter of 2022-Q4 to the upcoming quarter of 2023-Q1 continued to build. The latest update to the alternative futures chart shows that hypothesis as the new redzone forecast range spanning the month-long period from 22 November through 22 December 2022.

Alternative Futures - S&P 500 - 2022Q4 - Standard Model (m=+2.0 from 13 September 2022) - Snapshot on 2 Dec 2022

Investors are focused on this period because they are paying very close attention to statements by Federal Reserve officials about how they intend to set the level of the Federal Funds Rate when they meet in December 2022 and during the first quarter of 2023. This period is expected to contain the top for this basic interest rate as the Fed's current series of rate hikes comes to an end, now expected at the one year mark after they began.

The market moving headlines of the week that was emphasizes the outsize role the Fed is having on the trajectory of the U.S. stock market. Pay close attention to the news of 30 November 2022, since this news allowed the S&P 500 to end the month with a bang.

Monday, 28 November 2022

Tuesday, 29 November 2022

Wednesday, 30 November 2022

Thursday, 1 December 2022

Friday, 2 December 2022

The CME Group's FedWatch Tool continues to project a half point rate hikes at the Fed's upcoming December (2022-Q4) meeting, but now anticipates quarter point rate hikes at its February and March 2023 (2023-Q1) meetings. The Federal Funds Rate is still projected to peak at a target range of 5.00-5.25%. Looking further forward, the FedWatch tool now anticipates two quarter point rate cuts in 2023, coming in November and December (2023-Q4) as the Fed swings into reverse because of expected recessionary conditions in the U.S. economy.

The Atlanta Fed's GDPNow tool's projection for real GDP growth in 2022-Q4 rose plunged to 2.8% from last week's +4.3% estimate. That plunge shrank the gap between its current projection and the so-called "Blue Chip consensus", which still predicts near zero growth during the current quarter of 2022-Q4.

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