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.
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
- Daily signs and portents for the U.S. economy:
- Bigger trouble arising from bigger stimulus:
- Fed minion indicates desire to take punch bowl away:
- Eurozone, China showing signs of post-pandemic economic recovery:
- S&P 500 and Nasdaq end lower after sharp drop in tech titans
Tuesday, 14 July 2020
- Daily signs and portents for the U.S. economy:
- Fed minions see "lots of overcapacity", "thick fog", and "stubbornly long lasting" downturn:
- Bigger trouble developing in Singapore, Eurozone:
- Bigger stimulus slow to deliver results in China:
- Wall Street ends higher, led by energy and materials
Wednesday, 15 July 2020
- Daily signs and portents for the U.S. economy:
- Bigger trouble developing throughout Latin America, Eurozone, world:
- Bigger stimulus not developing in the Eurozone:
- Fed minions say U.S. markets are functioning just fine. Also that the coronavirus is creating more uncertainty:
- Wall Street rallies on vaccine bets, Goldman results
Thursday, 16 July 2020
- Daily signs and portents for the U.S. economy:
- Bigger stimulus developing all over, bigger trouble developing in Brazil:
- Fed minions expand balance sheet for first time in weeks, are okay with higher inflation, want less inequality, see some success, but think U.S. economy will take time to dig out from deep hole:
- Fed balance sheet rises to $7.01 trillion, weekly data shows
- This reverses a trend over the last several weeks, and would also communicate a greater willingess at the Fed to engage in a more expansionary monetary policy. The dividend futures-based model incorporates this change in expectation as a reduction in the model's amplification factor.
- Negative U.S. rate bets persist, but seen unlikely to happen
- Fed's Evans sees no reason to hike rates unless inflation soars
- Amid national debate on race, Fed's Bostic sees central bank role on inequality
- NY Fed's Williams says low take-up of emergency lending facilities a sign of success
- NY Fed's Williams says it could take time to dig economy out of 'very deep hole'
- Fed balance sheet rises to $7.01 trillion, weekly data shows
- ECB minions go on standby, prefer money give-aways:
- Wall Street ends lower on COVID-19 worries, tech weighs
Friday, 17 July 2020
- Daily signs and portents for the U.S. economy:
- Bigger trouble still developing in Japan:
- Bigger stimulus under negotiation in the U.S., Eurozone:
- U.S. Senate Republicans seek liability protections for coronavirus bill
- Treasury's Mnuchin open to blanket forgiveness for smaller business relief loans
- Austria's Kurz says rejects current EU recovery plan, expects new proposals
- The EU recovery fund's feast for the East
- ECB's de Guindos sees EU agreement on recovery fund by end-July
- S&P 500 ends higher as traders weigh stimulus and virus worries
Elsewhere, Barry Ritholtz has summarized the positives and negatives he found in the week's economy and markets news.
The next interesting question to ask: Will the amplification factor fall back into negative territory? And if so, what new information would prompt investors to bet on the Fed's monetary policies becoming even more expansionary?
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