S&P 500 adjusts to shifting interest rate hike expectations

February 7, 2023 03:31 ETBAPR, BAUG, BJUL, BJUN, BMAR, BMAY, BOCT, FIT, CAT, CSTNL, EFIV, EPS, FTA, HIBL, HIBS, IHO, IVV, IVW, KNG, NOBL, NVQ, PAPR, PAUGO, PBP, PJAN, PJUN, PUTW, QDIV, QVML, RPG, RPV, RSP, RVR, RWL, RYARX, RYT, SDS, SH, SNPE, SPDN, SPDV, SPGP, SPHB, SPHD, SPHQ, SPLG, SPLV, SPLX, SMO, SPMV, SPUS, SPUU, SPVM, SPVU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU, SPXV, SPIARE, SPY, SPYG, SPY, SPYX, SSO, SPY, UAUG, UJAN, UMAR, UMAY, UOCT, UPRO, USMC, VFINX, VOO, VOOG, VOOV, VXX, VXZ, XLG, XRLV, XVV, XYLD, XILG

Summary

• The S&P 500's trajectory fell to close the week at 4,136.48, still above the previous week's close.
• The week also saw continued improvement in expectations for S&P 500 quarterly dividends per share in 2023.
• The FedWatch tool projects that the Fed will keep the federal funds rate at a target range of 5.00-5.25% through September 2023.

Alexey_Arz/iStock via Getty Images

On Friday, February 3, 2023, an unexpectedly large upward adjustment in the number of employed Americans in the January 2023 Jobs Report led investors to revise their expectations for how high the Fed's rate hikes will be before the peak. Before the report, investors expected Fed rate hikes to peak in the range of 4.75% to 5.00% in March 2023. After the report, their expectations shifted to anticipate a peak rate range of 5.00% to 5.25% in May 2023.

In response, the S&P 500 (Index: SPX) fell to close the week at 4,136.48, still above the previous week's close. This is not unexpected, as the index is running at the upper end of the red zone forecast range on the alternative dividend futures model chart:

The week also saw a continued improvement in expectations for S&P 500 quarterly dividends per share through 2023, which we'll analyze separately in a few weeks, as we just covered it in the previous installment of our S&P 500 Chaos series. Note that these positive shifts in expectations are shifting the trajectory of S&P 500 alternative futures upward.

Here are the stocks that moved the market last week:

Monday, January 30, 2023

Tuesday, January 31, 2023

Wednesday, February 1, 2023

Thursday, February 2, 2023

• Signs and omens for the US economy:
  • Oil falls on economic data, stronger US dollar
  • US weekly jobless claims fall to nine-month low; productivity picks up speed
  • US factory orders rebounded in December
• Fed officials happy to experience “disinflation”:
  • Explanation – The Fed says disinflation is welcome. What exactly does that mean?
  • Fed's Powell Says No Rate Cuts This Year, Markets Think Otherwise
    • Analysis: Fed raises hopes of soft landing on Wall Street even as recession fears linger
    • Marketmind: Markets are betting everything on disinflation
• Central bankers thinking about slowing rate hikes are starting to realize they may have a credibility problem:
  • After a concerted rate hike, central banks are beginning to see the end
    • Bank of England raises rates, signals end of hikes
    • Hong Kong's central bank raises interest rate after Fed hike, HSBC keeps rate unchanged
    • Danish central bank raises benchmark interest rate to 2.1%
  • Markets for Central Bankers: We Don't Believe You
    • Central banks should maintain “higher for longer” interest rate approach – IMF
• ECB puppets eagerly offer another rate hike, thinking even more so as the eurozone economy slows:
  • ECB raises interest rates and promises another 50 bps in March
    • ECB raises interest rates, signaling at least one more hike
    • ECB governors see at least two more rate hikes, sources say
  • German exports fell 6.3% in December, suggesting economic slowdown
• Nasdaq and S&P 500 close higher as Meta hikes, Fed gains

Friday, February 3, 2023

Following last week's expected quarter-point Fed rate hike, CME Group's FedWatch tool forecasts another quarter-point hike at the Fed's next meeting on March 22 (2023-Q1), followed by another at its May 3 meeting (2023-Q2), the latter being the latest in a series of Fed rate hikes that began in March 2022. After that, the FedWatch tool forecasts the Fed will keep federal funds at a target range of 5.00-5.25% through September 2023, with rate cuts of a quarter-point in November and December (2023-Q4).

The Atlanta Fed's GDPNow tool projected real GDP growth in the first quarter of 2023 to remain flat at +0.71TP3Q. Meanwhile, the so-called "Blue Chip" consensus forecast points to negative GDP growth in the current quarter.

Editor's note: The summary points in this article were chosen by Seeking Alpha editors.

This article was written by

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