Is The S&P 500 Running Hot Or Are Other Factors At Work?

The S&P 500 (Index:SPX) dropped 1.1% to close the trading week ending Friday, 10 February 2023 at 4090.46.

But according to the dividend futures-based model, the trajectory of the index is running hot compared with the latest redzone forecast. Here’s the newest update to the alternative futures chart showing that situation:

Another way to read the level of the S&P 500’s trajectory is that it’s running about six to seven weeks ahead of the dividend futures-based model’s schedule.

There’s another possibility that might explain the current trajectory of stock prices. As shown, the model is currently based on the assumption its multiplier is +2.0, which is consistent with how investors have been setting stock prices since 13 September 2022. But what if that has changed for 2023?

One hypothesis we’re currently evaluating behind the scenes is that the multiplier may have shifted to zero at the beginning of the year. Here’s what the alternative futures chart looks like with that assumption.

Time will tell which of these scenarios is right. Unfortunately, unlike changes in dividend expectations that are easy to identify, the factors that cause the dividend futures-based model’s basic multiplier to shift are much more opaque. Our thinking is those shifts are affected by substantial changes in expectations for earnings growth, inflation and interest rates, but lack the data to be able to tell one way or another. Despite having invented and developed the model in 2008 and early 2009, we only have the experience of its multiplier changing from 2020 onward to test that proposition. The jury is very much out for what variables contribute to the shifts in the multiplier, which is why we rely on observation to determine its approximate value.

Meanwhile, the model works in forecasting stock prices because the multiplier tends to be constant for sustained periods of time. Since 2008, we’ve seen everything from a matter of weeks (in early 2020) to more than a decade (before early 2020)! How long those periods are sustained is one of the chaotic factors that make the behavior of stock prices so fascinating.

Monday, 6 February 2023

• Signs and portents for the U.S. economy:
• Fed minions pushing for higher rates:
• BOJ minion committed to legacy of never-ending stimulus, new management being sought:
• Central bank minions sending conflicting signals on direction of interest rates:
• ECB minions thinking they may be closer to done with rate hikes:
• Wall St ends down as investors await Fed’s next steps

Tuesday, 7 February 2023

• Signs and portents for the U.S. economy:
• Powell: Jobs report was stronger than expected but shows why this will be a long process
• Bigger trouble developing in Brazil, Taiwan, Eurozone:
• Other central bank minions starting to think they’re done with rate hikes:
• ECB minions find back door to create stimulus, rising inflation expectations:
• Wall Street rallies but trade choppy as investors digest Powell comments

Wednesday, 8 February 2023

• Signs and portents for the U.S. economy:
• Fed minions excited to deliver smaller rate hikes:
• Bigger stimulus rolling out in China:
• JapanGov minion wants to keep never-ending stimulus alive:
• ECB minions starting to worry about loans going bad, thinking about keeping bigger rate hikes going:
• Wall St falls after recent strong gains, Alphabet shares sink

Thursday, 9 February 2023

• Signs and portents for the U.S. economy:
• Bigger trouble developing in Asia:
• More central bank minions expected to keep hiking rates even as uncertainty mounts:
• Wall St dips as Treasury yields rise after auction

Friday, 10 February 2023

• Signs and portents for the U.S. economy:
• Fed minions on board with small rate hikes, claim no rate cuts until 2024:
• Bigger stimulus starts showing up in China:
• BOJ minions to get new boss, who might end never-ending stimulus:
• ECB minions say screw the Eurozone recession, more rate hikes ahead:
• Nasdaq ends lower as Treasury yields rise, Lyft plunges

The CME Group’s FedWatch Tool continues to project a quarter point rate hike at the Fed’s upcoming 22 March (2023-Q1) meeting, followed by another at its 3 May (2023-Q2) meeting, with the latter representing the last for the Fed’s series of rate hikes that started back in March 2022. After that, the FedWatch tool anticipates the Fed will hold the Federal Funds Rate at a target range of 5.00-5.25% until 1 November 2023 (2023-Q4). It anticipates a quarter point rate hike six weeks later when the Fed meets in mid-December (2023-Q4).

The Atlanta Fed’s GDPNow tool‘s projection for real GDP growth in the first quarter of 2023 jumped to +2.2% from its previous +0.7% estimate.

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.