The S&P 500 Swings To The Lower End Of Its Projected Trading Range

The S&P 500 (Index: SPX) lost 3.3% of its value in the trading week ending on December 9, 2022, closing the week at 3,934.38. The S&P 500 is 18.0% below its record high peak of 4,796.56 recorded on the first trading day of 2022.


The index' trajectory swung to the bottom edge of the latest redzone forecast range on the alternative futures chart and bounced along it during the week. This range is based on the assumption investors would be transitioning their forward-looking focus from 2022-Q4 to 2023-Q1 in the period from 22 November to 23 December 2022.

Alternative Futures - S&P 500 - 2022Q4 - Standard Model (m=+2.0 from 13 September 2022) - Snapshot on 9 Dec 2022

The market environment continues to force investors to pay lots of attention to how the Federal Reserve will be changing interest rates in the weeks and months ahead. A half point rate hike is anticipated to be set when the Fed's Federal Open Market Committee completes its upcoming two-day meeting on 14 December 2022, after which, we anticipate investors will fully shift to the more distant future quarters of either 2023-Q1 or 2023-Q2.

If investors focus predominantly on 2023-Q1, the trajectory of the S&P 500 will remain within the redzone forecast range. If investors shift a larger portion of their attention further forward in time to 2023-Q2, the trajectory will drop below this indicated range.

Which outcome happens will depend on what new information becomes available during the week. Speaking of which, here are the market-moving headlines we found in the past week's newstreams.

Monday, 5 December 2022

Tuesday, 6 December 2022

Wednesday, 7 December 2022

Thursday, 8 December 2022

Friday, 9 December 2022

The CME Group's FedWatch Tool maintained its projection of a half point rate hike at the Fed's upcoming 14 December (2022-Q4) meeting, but now anticipates another half point rate hike at its 1 February (2023-Q1). The Federal Funds Rate would then be boosted by a quarter point to a peak of 5.00-5.25% in May (2023-Q2). Looking further forward, the FedWatch tool now projects a quarter point rate cuts in 2023 as early as July (2023-Q3) followed by a second in December (2023-Q4) in response to expected recessionary conditions. A growing likelihood for a rate cut in 2023-Q2 is what we think would draw investors' forward-looking focus to this quarter, which would send the S&P 500 lower.

The Atlanta Fed's GDPNow tool's projection for real GDP growth in 2022-Q4 rose to 3.2% from last week's +2.8% estimate. The "Blue Chip consensus" has also been updated to anticipate slightly over 1% real growth for the current quarter of 2022-Q4.

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