S&P 500 De-levitates After Dimmed Prospects For Trade Deal, Gloomier Outlook For Eurozone

We're one week out from the expiration of 2019-Q1's dividend futures contracts, so we're using the opportunity to take a snapshot in time of the S&P 500 (Index: SPX), where we find that the index has dropped back into the redzone forecast range of our spaghetti forecast chart following investor disappointment that the U.S. and China haven't yet reached a trade deal, and the new information that the economic situation in the Eurozone has gotten gloomier.

Alternative Futures - S&P 500 - 2019Q1 - Standard Model with Annotated Redzone Forecast - Snapshot on 8 Mar 2019

The redzone forecast range on the chart is based on the assumption that investors would largely focus their attention on 2019-Q1 during February and March 2019. That assumption has mostly held up, but since that forecast incorporates dividend futures, whose contracts will expire on Friday, 15 March 2019, we will soon run out of 2019-Q1 for investors to focus upon. Given the relative level of the S&P 500 today, that means one of four things will happen in the next week: 

  1. Investors may shift their attention to 2019-Q2. If that happens, stock prices could rise 3-5%, since the quarter is projected to feature strong dividend growth.
  2. Investors may shift their attention toward the more distant future of 2019-Q3 or 2019-Q4. The expectations for the change in the rate of dividend growth in both quarters are similar, but unfortunately, following 2019-Q2, that growth is projected to sharply decelerate, which is an expectation that has been in the cards (or rather, in the futures), since mid-2018. If investors focus their attention in these quarters, the S&P 500 can be expected to experience a correction, falling by 10% or more.
  3. Investors might focus their attention to the even more distant future of 2020-Q1, in which we would still see the S&P 500 decline from its current levels, but more on the order of 3-5%.
  4. As if the way stock prices work wasn't already complex enough, the fourth option would be if investors split their attention between two different points of time in the future. In which case, we would expect to see stock prices fall in between the levels we described above, but would be weighted toward whichever future quarter has more strongly captured their attention.
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