S&P 500 Investors Betting On Bigger Fed Action To Boost Market

You may have noticed in the last several months that the value of the S&P 500 (SPX) has become really sensitive to things Fed officials say and do. And you wouldn't be wrong.

Last week, we noted investors seemed to be pricing in the expectation the Fed would adopt a more expansionary monetary policy than they had previously been anticipated. This week, they appear to have ramped up that expectation even further on the basis of things Fed officials said on Tuesday, 14 July 2020, which was followed by evidence later in the week of what they've done in the past week to boost their balance sheet for the first time in several weeks, reversing what had been a downward trend.

The overall effect on the S&P 500 was to send its level higher on the week.

Alternative Futures - S&P 500 - 2020Q2 - Standard Model (m=0 from 14 July 2020) - Snapshot on 17 Jul 2020

That change in the expectations of investors lowers the value of the amplification factor in the dividend futures-based model, where we now think its returned to a value around zero. As we've observed in the past several months, that kind of change is associated with investors betting on the Fed adopting a more expansionary monetary policy, of which, boosting the assets in holds on its balance sheet has been evidence of that policy in action.

We mentioned events in the news, so here's our summary of the past week's major market moving headlines, complete with some additional notes.

Monday, 13 July 2020

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