The story of what happened to the S&P 500 (Index: SPX) in the past is a simple one. After running into President Biden's wall of inflation the previous week, the index plunged into the bear market territory. Through the end of the trading week ending 17 June 2022, the index was 23.4% below its 3 January 2022 record high peak.

From our perspective, after the May 2022 inflation report came in higher than expected, investors sent the S&P 500 lower in a new Lévy flight event, the seventh of 2022, as investors scrambled to shift their attention back toward 2022-Q2 from 2022-Q3. But with the expiration of 2022-Q2's dividend futures contracts on Friday, 17 June 2022, the market has effectively entered 2022-Q3, even though the calendar quarter won't click over for another two weeks.

We think investors will, once again, shift their forward-looking attention toward 2022-Q3, because what actions the Fed will take next as it scrambles to get ahead of inflation will hold the focus of investors on this quarter. We've updated the alternative futures chart to add a new redzone forecast range to indicate where stock prices will likely go during the next several weeks, also assuming no deterioration of expected dividends or outbreaks of noise in the market.

In the very short term, that redzone forecast range suggests a higher level for the index, but one that could be relatively short-lived. We peeked ahead at the dividend futures-based model's projections for 2022-Q3, and see that the redzone range continues to drop to roughly where stock prices are today.

We can also confirm the bubble the Federal Reserve inflated for the S&P 500 through its coronavirus pandemic response has now fully deflated. We'll explore the data supporting that assessment later this week.

Here are the market-moving headlines in the week the Federal Reserve was forced to hike the Federal Funds rate by 0.75%, its largest rate hike since 1994.

Monday, 13 June 2022

• Signs and portents for the U.S. economy:
  • Oil rises on tight supplies; trade choppy on demand worries
  • Huge sell-off rocks Treasury markets, yield curve inverts
  • Morgan Stanley CEO sees 50% chance of U. S. recession
• Fed minions starting to admit they won't achieve a "soft landing", banks signaling they expect bigger rate hikes:
  • Fed tries to thread the needle in forecasting a 'softish' landing
  • 'Compelled by circumstances': some banks forecast 75bp Fed hike
    • Marketmind: Who wants to be a central banker?
• BOJ minions trying to keep never-ending stimulus alive:
  • BOJ to remain dovish outlier, keep rates low as its yen dilemma deepens
  • BOJ's Kuroda repeats vow to continue ultra-easy policy
• ECB, EU minions getting on board with bigger rate hikes:
  • ECB's Kazimir: we need to raise rates by 50 bps in September
  • German economy minister welcomes move to higher interest rates
  • ECB hikes are wrong way to curb inflation, says Draghi's right-hand man
• S&P 500 confirms bear market as recession worry grows

Tuesday, 14 June 2022

• Signs and portents for the U.S. economy:
  • U.S. fuel and trucking costs power producer inflation
  • Oil prices settle down on fears of Fed and oil profit tax
    • Exclusive-OPEC sees global oil demand growth slowing in 2023, sources say
• Fed minions expected to hike rates by three-quarter points:
  • U.S. rate markets price in aggressive 75-bps hike on Wednesday
• Bigger trouble developing in Eurozone, China:
  • French central bank sees second quarter growth of 0.25%
  • China attack on Taiwan would hit global trade more than Ukraine war, says Taiwan
• BOJ minions putting the Japanese government's borrowing/spending interests ahead of Japan's businesses:
  • BOJ ramps up bond buying to defend yield cap, undermining jawboning
  • Nearly half of Japan firms see weak yen as bad for business - survey
• Confused ECB minion lacks effective communication skills:
  • How will the ECB contain fragmentation risk in euro area bond markets?
  • No limits in ECB's fight against fragmentation -Schnabel
    • ECB word salad hubris
• S&P 500 dips with Fed policy announcement on tap
  • As S&P 500 confirms bear market, most of its components look worse

Wednesday, 15 June 2022

• Signs and portents for the U.S. economy:
  • Analysis-How it came to this: The Fed and White House's slow inflation awakening
  • U.S. mortgage interest rates jump to highest level since 2008
  • U.S. import prices increase solidly in May
  • U.S. business inventories rise strongly; sales slow
  • U.S. retail sales stumble as inflation bites
  • Oil prices fall over 2% as Fed hikes interest rates
• Fed minions got a fever. The only prescription is a bigger rate hike cowbell:
  • Fed officials jack up rates, inflation outlook
    • Instant View: Fed hikes rates by 0.75 percentage point, flags slowing economy
    • Fed shredding 'forward guidance' - for good or ill: Mike Dolan
    • Wall Street banks raise prime rates to match Fed's hike
    • Explainer-What Americans face now as the Fed raises interest rates
• Signs of recovery, but still bigger stimulus developing in China:
  • China's factories perk up, but frail consumption points to weak economic recovery
    • China May industrial output up 0.7% y/y, retail sales fall 6.7%; better than f'casts
  • China to ramp up support for the economy, avoid excessive stimulus
    • China's banks scramble to raise capital and answer calls to support economy
    • Chinese local govt financing units seek unorthodox route to raise funds
• ECB minions count on being clever to solve the congenital problems, claim they're not out to prop up EU countries with outsize debts:
  • How will the ECB contain fragmentation risk in euro area bond markets?
  • ECB to devise new tool to help indebted euro zone members
    • Analysis-Markets suspect new ECB tool to address bond stress could mimic old tools
    • ECB bond-buying scheme likely to have loose conditions -sources
  • ECB will not be dominated by fiscal considerations -Lagarde
• Wall Street rallies to close higher after Fed statement
  • Explainer-What is a bear market?

Thursday, 16 June 2022

• Signs and portents for the U.S. economy:
  • Oil prices fall after rate hikes, but tight supply still in focus
• Bigger trouble developing in Japan:
  • Analysis-Bond vigilantes and the BOJ are breaking Japan's bond market
• Bigger trouble, bigger stimulus developing in China:
  • China steps up fixed-asset investment to steady COVID-hit economy
  • China May new home prices fall again, more stimulus expected
• ECB minions thinking about three half-point rate hikes in 2022, and other central banks already acting:
  • New ECB tool allows three big rate hikes in 2022: Deutsche Bank
  • Europe's central banks jack up interest rates to fight inflation surge
  • Swiss National Bank raises rates in shock move, ready for more
• Wall St. fights for footing after steep selloff on recession worries
  • Analysis-Investors brace for recession, more market turmoil after Fed's supersized hike
  • Investors worry that U.S. profit forecasts are too high

Friday, 17 June 2022

• Signs and portents for the U.S. economy:
  • Oil slumps 6% to four-week low on recession worries, strong dollar
    • Column: White House tries to blame U.S. refiners for its own overheating error
  • U.S. manufacturing output softens; leading indicator extends decline
  • Rates on U.S. 30-year mortgages see biggest one-week increase since 1987
• Fed minions say they're out to fight inflation, not doing much to suggest they have a plan that doesn't involve crashing the economy:
  • Fed vows 'unconditional' inflation war, says soft landing still possible
    • U.S. economy has 40% chance of being in recession next year -BofA
    • Fed's Kashkari: 'prudent' to use 50 bps hikes after July
    • Fed's George feared 75-basis-point rate hike added to 'policy uncertainty'
• BOJ minions want to keep rates low and stronger yen, but won't get both:
  • BOJ maintains ultra-low rates, warns against sharp yen falls
• ECB minions thinking about bigger rate hikes to combat record-high Eurozone inflation if it gets worse:
  • ECB's Knot says several 50 bps rate hikes possible if inflation worsens
  • Euro zone inflation confirmed at record high 8.1% in May
• Wall St ends up but still down on week as volatility rules
  • Stocks eye steepest slide since 2020 as central bankers roil markets

After the Fed's 15 June 2022 three-quarter point rate hike, the CME Group's FedWatch Tool projects a half-point rate hike for both July and September 2022 (2022-Q3), then another half-point rate hike in early November (2022-Q4). Beyond that the FedWatch tool anticipates three quarter-point rate hies at six-week intervals from December (2022-Q4) and again in February 2023 (2023-Q1), topping out in the 3.75-4.00% range.

The Atlanta Fed's GDPNow tool turned even more pessimistic in the past week. Its forecast of real GDP growth of 0.0% for the U.S. in 2022-Q2 is down from last week's projection of 0.9% annualized growth. If that holds, it suggests the U.S. economy is in the midst of experiencing two consecutive quarters of real GDP shrinkage, which many people associate with the economy being in recession.