The S&P 500 Enters The Scary Season After Fed Signals Rates Higher For Longer
The S&P 500 was rocked by the outcome of the Federal Reserve's two day meeting ending on Wednesday, 21 September 2023. The index dropped 2.9% from the previous week's close to end the week at a level of 4320.06.
Almost all of the week's drop for the S&P 500 was concentrated in the period after the Fed announced it would not hike interest rates in September 2023 but signaled it would hold rates higher for longer than investors had previously expected. The effect of that change can be seen in the CME Group's FedWatch Tool, which now projects the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% through July (2024-Q3), six weeks longer than expected last week. Starting from 31 July (2024-Q3) however, 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 prospect of holding rates higher for longer was especially felt by the debt-laden firms that make up the Nasdaq 100 index (Index: COMP) and real estate firms, many of which are components of the S&P 500. As for the dividend futures-based model, we find the trajectory of the S&P 500 is still consistent with investors holding their attention on the end of 2024, with the index now in the lower half of the redzone forecast range. Here's the latest update of the alternative futures chart:
(Click on image to enlarge)
Here's our summary of the week's market-moving headlines, where you'll find most of the action in the latter part of the week that was:
Monday, 18 September 2023
- Signs and portents for the U.S. economy:
- Fed minions excited they may get results they want without more rate hikes:
- Central banks getting ready to stop hiking rates:
- ECB minions thinking about cleaning up mess they've made:
- Nasdaq, S&P, Dow end just above flatline as investors in 'wait & watch mode' ahead of Fed
Tuesday, 19 September 2023
- Signs and portents for the U.S. economy:
- Expectations set in for what Fed minions will do next:
- Bigger trouble developing in Canada:
- BOJ minions excited to keep never-ending stimulus alive, JapanGov minion says they'll end it someday:
- Nasdaq, S&P, Dow end slightly lower on eve of Fed rate decision; Instacart soars in debut
Wednesday, 20 September 2023
- Signs and portents for the U.S. economy:
- Fed minions won't hike rates, but raise threat they won't reduce them in 2024:
- Bigger trouble developing in Japan, China:
- ECB minions get reason to not hike rates again:
- Nasdaq slides ~1.5%, S&P slumps, Dow ends in the red after Fed signals 'higher for longer'
Thursday, 21 September 2023
- Signs and portents for the U.S. economy:
- Fed minions expected to keep U.S. interest rates higher for longer:
- Expectations rise BOJ minions will end never-ending stimulus sometime next year:
- ECB minions disappointed by results they're getting from their rate hikes, starting to worry about what will happen if they keep hiking:
- S&P posts worst day since late March, Nasdaq down nearly 2%, Dow slides more than 1%
Friday, 22 September 2023
- Signs and portents for the U.S. economy:
- Fed officials flag further hikes even after holding steady
- Some central bank minions pausing rate hikes, others proceeding with them:
- Bank of England hits stop on rate hike run as economy slows
- Swiss central bank in wait and see mode after surprise pause in hikes
- Norway raises rate to 4.25%, likely to hike again in Dec
- Indonesia central bank holds rates, keeps focus on rupiah
- Swedish central bank tightens policy, says it may need to do more
- BOJ minions excited to continue never-ending stimulus as economy slows and inflation grows:
- Bigger trouble developing in Eurozone from things ECB minions did:
- S&P 500, Nasdaq notch biggest weekly losses since March
The Atlanta Fed's GDPNow tool's forecast of annualized real growth rate during 2023-Q3 held steady at +4.9%.
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