The S&P 500's Volatility Ride Continues
For a week where the full U.S. Treasury yield curve inverted as stock prices were quite volatile, the week didn't end all that much differently than the previous week did.
By the end of the week, the S&P 500 (Index: SPX) was about one percentage point lower than a week earlier, as investors continued splitting their forward-looking attention between 2019-Q4 and 2020-Q1. And while investors flirted with focusing more closely on 2019-Q4 during the week, there wasn't enough in the news to shift it more fully onto that particular point of time in the future.
At this point, investors are betting the Federal Reserve will be forced to act aggressively to cut short term interest rates in a bid to revert the yield curve, with the CME Group's FedWatch Tool now projecting as many as four quarter-point rate cuts in the four quarters ahead:
We think the uncertainty of the timing of rate cuts between 2019-Q4 and 2020-Q1 is what is holding investors' attention on these two future quarters for now, but the potential deterioration of economic circumstances that would lead to the increased probability of rate cuts extending into 2020-Q2 could spark a much more negative reaction in stock prices should investors have reason to really focus on that particular future quarter.
There's also the potential that changes in the expectations for dividends in any of these upcoming quarters will have an impact on stock prices as well. Fortunately, dividend futures have so far been largely stable, where much of the outsized volatility we've seen may be attributed to investors shifting their time horizons in setting their expectations.
That's why we make a point of tracking the market-moving headlines each week, which we've presented below. The random onset of new information plays a large role in setting the forward-looking focus of investors.
Monday, 12 August 2019
- Oil steadies as Saudi, Kuwait signals offset demand fears
- Bigger trouble developing in China all over:
- Wall Street falls on geopolitical tensions, recession fears
Tuesday, 13 August 2019
- Oil soars near 5% as U.S. delays tariffs on some Chinese goods
- Bigger trouble developing in China:
- Global motor manufacturing slump hits oil demand: Kemp
- Trump delays tariffs on Chinese cellphones, laptops, toys; markets jump
- Tech leads Wall Street higher as tariff delay sparks rally
Wednesday, 14 August 2019
- Stocks, oil plunge on growing signs of global slowdown
- Shrinking German economy 'on edge of recession' as exports stutter
- U.S. curve inverts for first time in 12 years; 30-year yield tumbles
- Dow posts biggest one-day drop since October as recession fears take hold
Thursday, 15 August 2019
- Oil deepens slide on recession fears, China's trade threats
- Trump says China talks 'productive'; Beijing vows tariff retaliation
- U.S. curve inverts for first time in 12 years; 30-year yield tumbles
- S&P 500, Dow gain as upbeat retail sales offset recession fears
Friday, 16 August 2019
- Oil rises alongside equities, but downbeat OPEC outlook caps gains
- Bigger trouble developing
in Chinaall over: - Bigger stimulus developing
in Chinaall over:- To spur consumption, China preps plan to boost disposable income by 2020
- Germany ready to ditch balanced budget in case of recession: Spiegel
- Mexico's central bank cuts rates for first time in 5 years as economy sputters
- China to rely on reforms to lower real interest rates, cabinet says
- Thailand plans $10 billion stimulus to support economy
- Fed minions weighing rate cuts:
- Wall Street ends sharply higher on German stimulus optimism
Looking for the bigger picture of the week's news than the headlines we've noted above? Barry Ritholtz lists seven positives and only five negatives in the week's economics and market-related news.
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