The S&P 500 (Index: SPX) continued falling in the third full trading week of September 2022, closing the week down 4.65% from the previous week's close, and a full 23.0% below its 3 January 2022 peak.

This decline is consistent with how the dividend futures-based model would set stock prices if the model's basic multiplier was suddenly reset from the value of -2.5 that has applied since 16 June 2021 to be +2.0 as of 13 September 2022, assuming investors are also focusing their attention on the distant future quarter of 2023-Q2:

We're surprised by how closely the trajectory of the S&P 500 is tracking along with the model's projection of the index' trajectory associated with investors focusing their attention on 2023-Q2. That's because the model has also entered a period when we expect its projections are being affected by the past volatility of the historic stock prices it uses as the base reference points for projecting the index' future potential trajectories based on how far into the future investors are looking. That's something we'll revisit next week, when we'll estimate how much of the decline in stock prices is attributable to noise and how much is signal based on how investors have changed their view of the market.

Speaking of which, we find other analysts are picking up on just how different today's market is from that of just two weeks ago. Here's how Reuters covered that development on Friday, September 23, 2022:

Across Wall Street, banks are scrambling to adjust their forecasts to account for a Federal Reserve that shows no evidence of letting up in its fight against inflation after delivering another market-bruising rate hike this week and signaling more severe monetary policy tightening ahead.

Once-reliable technical indicators are falling by the wayside. The S&P dipped below its mid-June low of 3,666 on Friday afternoon, erasing a sharp summer rebound in U.S. stocks – the first time in history the index breached a new low after erasing more than half of its losses.

A rout in bond markets added to the pressure on stocks — yields on the benchmark 10-year Treasury, which move inversely to prices, recently stood at 3.67%, their highest level since 2010.

“These are uncharted waters,” said Sam Stovall, chief investment strategist at CFRA Research. “The market right now is going through a crisis of confidence.”

Or rather, the market has entered a new regime. Here are the market-moving headlines from the week that was:

Monday, 19 September 2022

• Signs and portents for the U.S. economy:
• Oil edges up as supply woes outweigh demand and rate hike worries
• U.S. road travel fell 3.3% in July as gas prices remain high
• U.S. home builder sentiment falls for ninth straight month in September
• Bigger stimulus developing in China:
• China to accelerate projects, boost consumption to spur recovery
• China central bank cuts 14-day reverse repo rate, steps up cash injections
• BOJ minions starting to think inflation in Japan may not be temporary:
• 'Temporary' disappears as BOJ contemplates accelerating inflation
• ECB minions thinking about looking at data before next rate hikes:
• Further interest rate hikes will depend on data, ECB's de Guindos says
• Wall Street ends higher after choppy trading ahead of Fed

Tuesday, 20 September 2022

• Signs and portents for the U.S. economy:
• U.S. two-year yield at almost 15-year high before Fed meeting
• Oil prices down, investors expect big Fed rate hike
• Bigger stimulus developing in China:
• COVID-hit Shanghai unveils $257 billion in projects in infrastructure push
• Bigger trouble developing in the Eurozone:
• German producer prices post surprise record jump in August
• Central bank rate hike global mania!
• Indonesia to raise rates by another 25 bps in Sept, some call for 50 bps: Reuters poll
• Philippines central bank to go for another 50 bps rate hike on Thursday
• Australia's central bank says hikes could slow at some point
• Sweden lifts interest rates by full percentage point with more to come
• ECB's Lagarde raises prospect of rate hikes beyond neutral level
• BOJ minions facing higher-than-target inflation, Japanese government readies more stimulus:
• Japan's inflation hits near 8-year high, stays above BOJ's target
• Japan govt will spend $24 billion in budget reserves to cope with price hikes
• Japan PM Kishida faces pressure to ramp up spending as approval slides
• Wall Street falls as Fed, Ford forecasts, give fright
• Ford stock has biggest daily drop since 2011 after inflation warning

Wednesday, 21 September 2022

• Signs and portents for the U.S. economy:
• U.S. mortgage interest rates reach 6.25%, highest level since October 2008
• Printing the future: New factory tech reshapes the U.S. industrial economy
• U.S. home sales drop for 7th straight month, house price growth cooling
• U.S. rents surge, leaving behind generation of younger workers
• Oil prices slide 1% after U.S. Fed raises interest rates
• Gold price jumps as Fed’s Powell talks chance of recession and restrictive rates
• Fed minions hike rates as expected while increasingly expecting face recession:
• Fed delivers big rate hike, sees another large move higher in 2022
• Fed forecasts show fraying faith in soft landing
• The Fed's latest rate hike: five ways Americans may feel the pain
• Fed goes big again with latest rate hike; Powell vows to 'keep at it'
• BOJ minions want leader to continue never-ending stimulus policies, half of economists think BOJ minions won't stop yen drop:
• BOJ's dovish deputy Amamiya top candidate as next head - Reuters poll
• Japan unlikely to intervene to stem weak yen, half of economists say - Reuters poll
• ECB minions says more rate hikes on top of recession needed to reduce Eurozone inflation:
• Recession alone won't subdue euro zone inflation - ECB's de Guindos
• Wall Street slumps in wake of Fed rate announcement
• "Maybe 4-5% Inflation Is The New Normal" - Wall Street Reacts To Powell's Hawkish Surprise

Thursday, 22 September 2022

• Signs and portents for the U.S. economy:
• U.S. mortgage rates rise to 6.29%, highest in 14 years
• Big U.S. banks' prime rate soars to highest since 2008 financial crisis
• Oil edges higher on Russian supply concerns in volatile trade
• U.S. leading indicator falls for sixth consecutive month in August
• Bigger stimulus developing in China:
• China's largest policy bank to boost infrastructure loans to local govts
• Central banks continue rate hike mania:
• Central banks unleash 350 basis points more of rate hikes in inflation fight
• ECB must keep raising rates despite downturn, Schnabel says
• Euro zone inflation broadening and will continue to rise, ECB's Schnabel says
• Analysis-Europe says goodbye to negative rates - or just 'au revoir'?
• Indonesia central bank raises rates by 50 bps to head off inflation risks
• Swiss National Bank exits negative rates era with 0.75% hike
• Bank of England hikes rates by 50 bps as economy slows
• Norway lifts rates to 2.25%, expects smaller hikes ahead
• BOJ minions refuse to quit never-ending stimulus, have to prop up yen to stop it from collapsing:
• Bank of Japan keeps ultra-low rates, dovish policy guidance
• Japan intervenes in FX market to stem yen falls after BOJ keeps super-low rates
• Yen jumps as Japan intervenes in currency market for first time since 1998
• Wall Street ends down for third day as growth concerns weigh on tech

Friday, 23 September 2022

• Signs and portents for the U.S. economy:
• U.S. business activity remains subdued in September - S&P Global survey
• Oil plunges to eight-month low on strong dollar, recession fears
• Bigger trouble developing in the Eurozone, United Kingdom:
• Euro zone likely entering recession as price rises hit demand -PMI
• German economic downturn deepens in Sept, outlook grim -flash PMI
• UK downturn deepens, raising recession risk -flash PMI
• Bigger stimulus developing in the U.K.:
• UK's Kwarteng to scrap top rate of income tax, cut basic rate from April
• More central bank rate hikes on tap:
• BoE needs to hike rates next week to calm markets - Deutsche Bank analyst
• Swiss National Bank ready for further steps to combat inflation - Jordan
• Hungary central bank seen hiking rate by 100 bps to 12.75% - Reuters poll
• Wall St tumbles as investors fret on rate hikes and recession
• Dow poised to confirm bear market status as recession fears mount
• 'Uncharted' sell-off in U.S. stocks has investors wondering when the pain stops

After the Fed hiked the Federal Funds Rate to a target range of 3.00-3.25%, the CME Group's FedWatch Tool projects a three-quarter point rate hike when the FOMC meets in early November (2022-Q4), followed by a half point rate hike in December (2022-Q4). In 2023, investors are expected at least a quarter point rate hike in February (2023-Q1) and another in June (2023-Q2), bringing the FFR to a target range of 4.75-5.00%. After this peak in 2023-Q2, the FedWatch tool indicates the Fed will respond to developing recessionary conditions with quarter point rate cuts projected in July (2023-Q3) and December (2023-Q4).

Meanwhile, the Atlanta Fed's GDPNow tool's projection for real GDP growth in the soon-to-end quarter of 2022-Q3 dropped again for the third consecutive week, from 0.5% to 0.3%. The Bureau of Economic Analysis will provide its first official estimate of real GDP growth in 2022-Q3 at the end of October 2022. The BEA has previously indicated the first two quarters of 2022 experienced negative real growth, but that may change as the BEA's analysts release their annual revisions.

Extraordinary things are afoot for the S&P 500 (Index: SPX). After recovering from the Eurozone geopolitics noise event last week, the index plunged on 13 September 2022 as investors reacted to the news that inflation in the U.S. is running much hotter than expected. By the end of the trading week, the S&P 500 retreated to 3,873.33, some 19.2% below its 3 January 2022 all-time record high and just 0.8% away from the 20% decline threshold that defines a bear market.

Investors reacted that way because the high inflation means the Federal Reserve will keep hiking rates until a hard landing in the form of a recession is inevitable. The CME Group's FedWatch Tool projects a three-quarter point rate hike next week (2022-Q3), which investors are now betting will be followed by another three-quarter point hike in November (2022-Q4). The tool then projects the pace of rate hikes may slow a bit, with a quarter-point rate hike in December (2022-Q4) to close out 2022 in the target range of 4.00-4.25%. In 2023, the FedWatch tool anticipates quarter-point rate hikes in both February and March (2023-Q1) to reach a target range of 4.50-4.75% before potentially reversing in either May or June (2023-Q2) in response to building recessionary conditions.

The latest update to the alternative futures chart captures the plunge in stock prices, which have fallen below the levels associated with the dividend futures-based model's projected trajectories associated with how far investors are looking into the future and their expectations for dividend growth at those times.

As this is being written, it's still too early to make a firm determination, but here are the possibilities for what that development means:

1. The market is experiencing a new noise event. If so, the deviation from the model's projections will be temporary, as it was for the Eurozone Geopolitical Noise event that ended the previous week, and we'll see stock prices rebound up to the levels projected by the model after the noise dissipates.
2. The market is experiencing a regime change. For the dividend futures-based model, that means investors are resetting how they value changes in the growth rate of dividends with respect to how they relate to changes in the growth rate of stock prices. In the model, that relationship is often stable and can be nearly constant for prolonged periods of time. But it does change and when it does, it shows up as a change in the value of the model's basic multiplier (m).

The early evidence is supporting the second option, if we also assume investors shifted their forward-looking focus toward 2023-Q2 in setting current day stock prices, which is to say the inflation report prompted another Lévy flight event this year. If so, the value of m changed from the -2.5 it has been since 16 June 2021 to instead be around +2.0 as of 13 September 2022. The next chart shows how the model's projections would change under that scenario:

The week's market-moving headlines and the FedWatch tool's projections provide evidence in support of such a new Lévy flight event, in which investors would be looking out to 2023-Q2 as the likely timing in which the Fed's current series of rate hikes reach their terminal peak before the Fed is forced to reverse and begin cutting rates because of building recessionary pressures. It may however be some weeks before we have a clear answer as to which scenario we've described applies or if something else altogether is at work. Unofficially, we're hoping the scenario we described is wrong and the first scenario is the right one.

But that's all part of what makes tracking the S&P 500 such chaotic fun! Here's the past week's market moving headlines:

Monday, 12 September 2022

• Signs and portents for the U.S. economy:
• Oil prices settle higher amid supply concerns heading into winter
• U.S. Treasury's Yellen says oil prices could spike in winter
• U.S. holiday sales growth likely to slow as inflation hits shoppers - report
• U.S. consumers' inflation expectations fall again, NY Fed says
• Fed set for another 75-basis-point rate hike; early pivot unlikely: Reuters poll
• Bigger trouble developing in the Eurozone:
• Inflation, contraction to plague German economy in 2023 -Ifo
• Bigger stimulus developing in China:
• China to roll out more measures to stabilise economy - state media
• Central banks signaling growing recession risks will cap rate hike plans:
• Rate-hike cycle in Poland may be ending, central banker Kochalski says
• CPI in Poland may stay at two-digit level through 2024, rate-setter Kotecki says
• BOJ minions still happy with never-ending stimulus shrinking value of yen:
• BOJ set to end COVID-relief scheme, but no change to loose policy
• Analysis-BOJ is nowhere near shifting monetary policy to support yen
• Wall Street closes higher ahead of CPI report
• S&P 500 companies could see the smallest earnings growth in 2 years as recession chatter from corporate execs reaches highest in a decade

Tuesday, 13 September 2022

• Signs and portents for the U.S. economy:
• Biden celebrates 'Inflation Reduction Act' as food, rent prices climb
• Hot US Aug CPI seen cementing aggressive FOMC
• Fed seen getting more aggressive as inflation roars
• Stubbornly high rents, food prices boost U.S. inflation in August
• Oil dips nearly 1%, reversing gains after bearish U.S. economic data
• U.S. banks feeling strangely confident before inflation report:
• Global economy may avoid recession as inflation risks ease - J.P. Morgan
• U.S. banks' key performance metric set to turn around in second half
• Fed minions expected to deliver bigger rate hikes after inflation report:
• Fed Mouthpiece Speaks: "At LEAST 75bps Next Week" Sends Odds Of 100bps Rate Hike to 47%
• Bigger trouble developing in Japan, Eurozone:
• Japan's Aug wholesale inflation hits 9% as price rises broaden
• German economy could contract in H2 - economy ministry report
• Bigger bailouts developing in Eurozone, Canada:
• Germany to step up state bank credit for struggling energy firms
• Canada's Trudeau announces C$4.5 billion inflation relief package for low earners
• Central banks gearing up for more rate hikes:
• Bank of England to raise rates by 50bps again to tame inflation: Reuters Poll
• Wall St tumbles to biggest loss in two years following CPI data
• Analysis-Wall St outlook darkens as grim inflation report tees up more Fed hawkishness

Wednesday, 14 September 2022

• Signs and portents for the U.S. economy:
• U.S. mortgage interest rates top 6% for first time since 2008
• Oil rises 1% on supply concerns, expectations for fuel switching
• Bigger trouble developing in Japan, Eurozone:
• Japan Sept factory mood tanks on cost pressure - Reuters Tankan
• Euro zone industrial production much weaker than expected in July
• BOJ minions say they won't let never-ending stimulus crash the yen:
• Japan's Kanda: Will 'respond appropriately' to yen moves
• BOJ conducted rate check in apparent preparation for currency intervention -Nikkei
• Japan will act 'swiftly' if it intervenes in FX market - Finance Minister
• Japan signals chance of yen intervention; market unconvinced
• Yen rallies vs dollar after BOJ rate check, hints on intervention, U.S. PPI data
• ECB minions thinking about how high they're going to hike interest rates:
• Top of ECB rates cycle an open question, ECB's Herodotou says
• ECB could reach neutral rate by year end - Villeroy
• Wall St staggers to higher close as Fed rate hike looms

Thursday, 15 September 2022

• Signs and portents for the U.S. economy:
• U.S. Northeast faces potential energy shortages as rails start to shut
• Oil slumps over 3% on U.S. rail agreement, demand concerns
• U.S. manufacturing output ekes out small gain in August
• U.S. retail sales unexpectedly rise, but inflation hampering spending
• Bigger trouble developing in China:
• Big Chinese state-owned banks to cut personal deposit rates - Securities Times
• China central bank pauses monetary easing, partially rolls policy loan, keeps rate unchanged
• Chinese economy's export pillar shows cracks from global slowdown
• BOJ minions get first reality check:
• Yen intervention will not stop sharp declines, official warns
• ECB minions "determined" to root out inflation:
• ECB must take determined steps to root out high inflation, de Guindos says
• 'Small' or 'determined'? ECB policymakers spar on rate hikes
• Wall St tumbles amid Fed tightening jitters, economic rumblings
• Shaken Wall Street awaits final capitulation to greenlight buying

Friday, 16 September 2022

• Signs and portents for the U.S. economy:
• Oil prices up after Basra spill, but log weekly decline
• Forecast for Fed terminal rate hits new high, shaking stocks and bonds
• Mixed economic signs in China:
• China's economy perks up but dogged by property crisis
• China's property woes deepen in Aug as prices, sales and investment drop
• BOJ, Japanese government minions getting ready to keep yen from crashing as prices surge:
• Japan signals readiness to act in FX market if sharp yen volatility persists
• Analysis-'It's a car with broken brakes': investors see unrelenting yen descent
• Japan August core inflation seen hitting near 8-year high - Reuters poll
• Analysis-'Temporary' disappears as BOJ contemplates accelerating inflation
• ECB minions say they need bigger recession to slow inflation, suggest they may go for it:
• Euro zone slowdown not enough to control inflation, ECB's de Guindos says
• Euro zone inflation confirmed at 9.1% as energy, food prices surge
• ECB's Lagarde says price stability priority before growth
• Explainer-Can the ECB really stop at the 'neutral' rate?
• Wall St drops to two-month lows as recession fears mount
• FedEx sinks as pulled forecast deepens global slowdown fears
• FedEx Nukes "Economy's Doing Fine" Narrative, Global Stocks/Bonds Lose $4 Trillion in Week

The Atlanta Fed's GDPNow tool's forecast for real GDP growth in 2022-Q3 plunged for the second consecutive week, from 1.3% to 0.5%. The Bureau of Economic Analysis will provide its first official estimate of real GDP growth for the U.S. economy in 2022-Q3 on 27 October 2022.

The S&P 500 (Index: SPX) quickly recovered from the outbreak of geopolitical noise originating from the Eurozone in the previous week, rising 143.10 points (+3.6%) to end the Labor Day Holiday-shortened trading week at 4,067.36.

The change puts the level of the index back within the typical range anticipated by the dividend futures-based model for investors focusing on the current quarter of 2022-Q3. The latest update to the alternative futures chart shows that development.

With the geopolitical noise tied to energy demand and the very short supply of fossil fuels in Germany, the trigger for dissipating the noise can be traced to a decision by Germany's government to continue operating two nuclear power generating stations it previously planned to shutter without replacement by the end of this year. The sudden reversal of its anti-nuclear power policies greatly reduced the country's projected developing shortage of fossil fuels in the short term, which threatened to throw the country into deep recession from its poorly considered energy policies.

In the first week of September 2022, the inevitable outcome to Germany's bad policies threatened to bleed out into the global economy, which created the negative noise event causing stock prices to drop to "deeply undervalued territory". But all noise events end, it was only ever a question of when. Germany's energy policy U-turn was the week's main market-moving event.

Of course, other stuff happened too. Here's our summary of the week's lesser market-moving headlines:

Tuesday, 6 September 2022

• Signs and portents for the U.S. economy:
• U.S. service sector keeps momentum in August; price pressures ease - ISM survey
• Oil sinks as demand fears take steam out of OPEC-led rally
• Europe heading for recession as cost of living crisis deepens
• EU gas price rockets higher after Russia halts Nord Stream flows
• Euro zone business activity contracted again in August -PMI
• German services sector stumbles as soaring inflation hits confidence - PMI
• German industrial orders fall sixth month in a row as Ukraine war bites
• Bigger trouble developing in Japan, China:
• Japan's services sector shrinks for first time in five months in August - PMI
• China's trade likely lost steam in Aug as demand shrinks - Reuters poll
• China August service sector growth eases amid COVID woes: Caixin PMI
• China's 2022 property sector outlook worsens, home prices seen falling
• Zero-COVID in China: Lockdowns of Major Cities Continue
• Bigger stimulus developing in China:
• China policymakers see renewed urgency for economic support
• China has ample room for monetary policy: central bank deputy governor
• China central bank to cut FX reserve ratio to help limit yuan weakness
• China's top banks face narrowing margins as calls to help economy grow
• Central Banks firing up rate hikes:
• Australia's central bank hikes by 50 bps, signals more ahead
• European Central Bank to go large with 75 bps move on Thursday - Reuters poll
• Wall Street ends busy post-summer session in the red

Wednesday, 7 September 2022

• Signs and portents for the U.S. economy:
• Oil settles below $90 as recession fears mount
• U.S. trade deficit narrows in July; exports at record high
• U.S. firms see tentative progress on inflation and labor supply, Fed says
• U.S. may need 7.5% unemployment to curb inflation -research
• Fed minions talking up higher interest rates:
• Fed's Barkin warns rates must stay high until inflation eases- FT
• Fed's Brainard says inflation fight will last "as long as it takes"
• Fed's Collins: 'more to do' on U.S. interest rate hikes
• Fed's Mester warns high rents mean inflation may not yet have peaked
• Bigger trouble developing in China:
• China's 2022 property sector outlook worsens, home prices seen falling
• China's trade falters as demand wanes at home and abroad
• Mixed news for the Eurozone:
• Euro zone Q2 growth revised up, supported by household spending
• Factbox-Euro zone bill for cost of living crisis nears 300 billion euros
• German inflation-relief package to amount to 13 billion euros in 2022
• BOJ minions determined to keep never-ending stimulus going:
• BOJ to keep low rates even as inflation seen hitting 3% - ex-central bank policymaker
• More central banks fire up interest rate hikes, plan to slow pace as economies cool:
• Bank of Canada unveils 75-basis point hike and flags more increases
• Bank of Canada lifts rates to 14-year high, keeps door open on more tightening
• Polish central bank slows down rate hikes, projects decline in GDP growth
• Australia's central bank opens door to slower rate hikes
• Stocks jump as Treasury yields ease and oil prices sell off

Thursday, 8 September 2022

• Signs and portents for the U.S. economy:
• Oil prices fall further as China extends COVID curbs
• U.S. gasoline prices to keep falling as refiners keep making other products
• U.S., Indo-Pacific countries launch new-generation trade talks shunning tariff cuts
• China says Biden decision on tariffs hurts U.S. companies, consumers
• With U.S. railroad shutdown threatening, industry counts the cost
• Fed minions "strongly committed" to fighting inflation, say it won't hurt much, and claim they can do more than one task at time:
• Powell says Fed "strongly committed" to inflation fight
• Fed's Powell hopeful inflation can be tamed without pain of Volcker era
• Fed's Powell: Fed's two mandates not in conflict
• Fed 'could very well' hike rates by 75 basis points this month, Evans says
• Fed's Evans says inflation read could inform Sept rate meeting
• Fed's 'soft landing' hopes alive as it edges toward another big rate hike
• Bigger trouble developing in the Eurozone:
• German economic institutes cut 2023 GDP forecast on energy price surge
• Exclusive-German economy ministry reviews measures to curb China business
• ECB minions excited to deliver bigger rate hike into worsening economy:
• ECB raises rates by unprecedented 75 basis points
• ECB promises more rate hikes after unprecedented increase
• Lagarde comments at ECB press conference
• Wall Street ends higher, gains driven by banks, healthcare
• Stocks, bond yields rise after record ECB rate hike, Powell comments

Friday, 9 September 2022

• Signs and portents for the U.S. economy:
• Oil rises 4% on supply threats, still set for weekly drop
• Fed minions want MOAR, BIGGER rate hikes!
• Fed races down the home stretch toward another oversized rate hike
• Fed's Waller: need aggressive rate hikes now while economy can take it
• Bigger trouble developing in China:
• China's consumer, producer inflation slows in August as COVID saps demand
• China's Aug new bank loans rise less than expected, credit growth slows
• BOJ minions getting results they want from falling yen, say they'll keep it from rapid collapse:
• Japan Aug trade deficit seen at near 9-year high as weak yen boosts imports - Reuters poll
• BOJ's Kuroda weighs in to warn against 'rapid' yen moves
• ECB, Eurozone minions thinking inflation may be a problem:
• ECB's Villeroy says: inflation will stay high next year
• ECB must keep on raising rates to fight inflation, policymakers say
• Euro zone to coordinate with ECB to fight inflation, avoid adding price pressure
• Banks call 75 bps ECB October rate hike
• Wall Street scores first weekly gain since mid-August
• Stocks jump as growth shares lead; 2-year U.S. yields hit 14-year highs

The CME Group's FedWatch Tool still anticipates a three-quarter point rate hike in September (2022-Q3), but now projects a half-point rate hike in November (2022-Q4), followed by a quarter-point rate hike in December 2022. In 2023, the FedWatch tool predicts one last quarter-point rate hike in March (2023-Q1), with the Fed's series of rate hikes topping out in a target range of 4.00-4.25%. The FedWatch tool then forecasts the Fed will be forced to respond to developing recessionary conditions by announcing a quarter point rate cut in June (2023-Q2).

The Atlanta Fed's GDPNow tool's forecast for real GDP growth in 2022-Q3 plunged 2.6% to 1.3% over the past week, fully reversing the growth surge it predicted a week ago.

Update 13 September 2022

And then the August 2022 inflation report dropped, crashing the expectatation the Federal Reserve's minions might be able to pull off a "soft landing".

It may finally be time to reset the value of m, the basic multiplier used in the dividend futures-based model.

The S&P 500 (Index: SPX) moved back toward bear territory in the trading week ending on 2 September 2022. Geopolitics, particularly those emanating from the Eurozone, played an outsize role in sending stock prices to their lowest level in weeks.

The biggest reversal came on Friday, 2 September 2022, when the index swung from being up as high as 1.3% in the morning to instead close down by 1.2%. The major factor driving that development was Vladimir Putin's announcement that Russia would shut down gas pipelines going to the European Union indefinitely. The action will likely drive the Eurozone fully into recession.

And if not that, the higher interest rates the minions of the European Central Bank are considering to combat the inflation caused in good part by having the continent's Russian-supply of oil cut off may also do the job. The Eurozone doesn't lack for bad options and its problems appear are bleeding over into the U.S. stock market.

If not for the geopolitical noise event, we think the S&P 500 would be tracking more closely to the alternative trajectory associated with investors focusing on 2022-Q3, which is where they had clearly set their focus as early as last week. At least, until the deep hole the Eurozone is in got deeper. The market moving headlines of the week that was capture those developments along with the U.S.-based market drivers that primarily influence the U.S-based index.

Monday, 29 August 2022

• Signs and portents for the U.S. economy:
• Oil settles up more than 4% on prospect of OPEC+ supply cut
• Central banks will fail to tame inflation without better fiscal policy, study says
• Pain of breaking inflation will reverberate around the globe
• Senator Warren worries that Fed will tip U.S. economy into recession
• North American companies send in the robots, even as productivity slumps
• Could Fed's 'softening' labor market prediction mean 4 million lost jobs?
• Fed minions "happy" with reaction to Powell's Jackson Hole message:
• Fed to stay focused on inflation, markets will be volatile - UBS Global Wealth
• Fed's Mester: no 'lean' on size of Sept rate hike, depends on inflation
• Fed's Kashkari: 'happy' with market reaction to Powell speech -Bloomberg
• Bigger stimulus, trouble developing in China:
• China's August factory activity likely shrank amid COVID flare-ups, property crisis - Reuters poll
• China policy steps this year exceed those of 2020 - state media cites premier
• Bigger trouble developing in the Eurozone:
• The EU’s impotent rage at Putin’s gas games
• ECB minions thinking about multiple, bigger rate hikes:
• ECB should raise rates at steady pace, chief economist says
• Wall Street retreats as rate hike concerns persist

Tuesday, 30 August 2022

• Signs and portents for the U.S. economy:
• U.S. labor market defies interest rate hikes as job openings rise high in July
• Oil dives nearly $6 a barrel on demand fears, Iraq exports
• Fed minions say recession they're making won't be all that bad, want to end rate hikes before 2023:
• Fed's Barkin: no need for possible U.S. recession to be 'calamitous'
• Fed could 'dial back' 75-basis-point hikes if inflation slows, Bostic says
• Fed's Williams: no rate cuts expected next year
• Fed's Williams sees no early end to balance sheet runoff
• Bigger stimulus developing in China:
• China pledges to lift economy with stable employment, prices in H2
• ECB minions getting excited about developing recession, thinking they need higher interest rates:
• ECB's Lane sees euro area slowdown, does not rule out technical recession
• Near 50-year high German inflation strengthens case for larger ECB rate rise
• ECB must act decisively; recession fears should not constrain policy -Nagel
• ECB rates may need to go higher than neutral, Wunsch says
• ECB's Stournaras opposes big rate move, calls for prudence
• Wall St closes down for 3rd straight session on Fed rate hike worry

Wednesday, 31 August 2022

• Signs and portents for the U.S. economy:
• U.S. Labor Day weekend travel volumes seen rebounding to pre-pandemic levels
• Oil prices slump again, hit by demand concerns
• U.S. private payrolls growth slows in August-ADP
• Bigger trouble developing in China:
• China's factory activity extends declines as heat, COVID hit output
• China's largest banks show wounds from property sector crisis
• Positive signs in India:
• India's economy probably grew at its fastest pace in a year in June quarter
• BOJ minions determined to keep never-ending stimulus alive:
• BOJ policymaker warns of fragile recovery, signals sustained low rates
• ECB minions thinking about having orderly, larger rate hikes:
• ECB's next move on rates should be 'orderly and predictable' -Villeroy
• Wall Street ends August with a whimper on Fed worry
• Stock picking hedge funds poised for worst performance in 10 years

Thursday, 1 September 2022

• Signs and portents for the U.S. economy:
• Oil slides 3% as China lockdowns stoke demand fears
• Single-family homebuilding weighs on U.S. construction spending in July
• U.S. manufacturing sector steady in August; price pressures ease further - ISM
• Revisions confirm steep decline in U.S. productivity in second quarter
• Fed minions say fighting inflation is Job #1:
• Fed's Logan: Restoring price stability is No. 1 priority
• Bigger trouble developing in Canada, Mexico, Eurozone:
• Canada factory activity shrinks on sagging output, new orders
• Mexico factories contract again in August, bracing for difficulties ahead
• Euro zone economy faces growing risk of recession, survey shows
• Japanese factories get whipsawed:
• Japan's factories expand output for a second month in July
• Japan Aug factory activity growth drops to near one-year low - PMI
• Much bigger trouble developing in China:
• China's economic outlook dulled by fresh property, COVID woes
• China's August factory activity shrinks as orders weaken - Caixin PMI
• ECB minions worry they might make things worse:
• ECB's Centeno urges policymakers not to rush into 'pro-cyclical' measures
• S&P 500 snaps four-session losing streak with payrolls on deck

Friday, 2 September 2022

• Signs and portents for the U.S. economy:
• U.S. job growth solid in August; unemployment rate rises to 3.7%
• U.S. factory orders drop in July on defense aircraft
• Oil climbs ahead of OPEC+ meeting next week
• Fed minions preying on hope they can deliver soft landing despite their awful track record:
• Fed's job-friendly 'soft landing' hinges on history not repeating
• Fed seen sticking to interest rate hikes even as unemployment rises
• Bigger trouble developing in the Eurozone:
• Russia suspends Nord Stream gas pipeline to Europe indefinitely
• ECB minions being pressured to stop thinking and start hiking bigger:
• Calls for jumbo 75bps ECB refi rate hike on Sept 8 on knife's edge - Reuters poll
• Take Five: ECB - to hike big or really big
• Wall St ends week on down note as jobs report gain fade
• Putin Kills Goldilocks: Stocks Slammed As Russia Wrecks Dove's Dreams

The CME Group's FedWatch Tool still projects a three-quarter point rate hike in September (2022-Q3), but now forecasts that will be followed by a series of quarter point rate hikes that will top out in the target range of 3.75-4.00% in February 2023.

Meanwhile, the Atlanta Fed's GDPNow tool's forecast for real GDP growth in 2022-Q3 jumped from 1.6 to 2.6% over the past week.

Fed Chair Jerome Powell spoke from the Federal Reserve's annual retreat Jackson Hole on Friday, 26 August 2022. In doing that, he succeeded in sending the S&P 500 (Index: SPX) on its tenth confirmed Lévy flight event of 2022, sending the index down 3.37% to close the week at 4,057.66.

Since it's the tenth Lévy flight event of the year, investors are getting a lot of exposure these high volalilty episodes. For readers who are new to the concept, here's what it means:

• Lévy flights involve large changes in stock prices that occur more often than statistical analysis based on a normal distribution predicts.
• These events coincide with investors shifting their forward-looking focus from one point of time in the future to another.
• How much stock prices change during these events is tied to what the expectations are for dividend growth between these future points in time.

All of which are tied together in the dividend futures-based model we invented to forecast the future for the S&P 500. The alternative futures chart tracks the actual trajectory of the index against the levels it projects it would be for when investors focus their attention upon specific future quarters.

Going into the last trading week, the chart shows investors had been focused on the future quarter of 2023-Q1 in setting current day stock prices. Fed Chair Powell's Jackson Hole speech on Friday, 26 August 2022 however refocused their attention on 2022-Q3 by increasing the uncertainty they have for how much the Fed will change interest rates at its upcoming September meetings.

Our summary of the market-moving headlines of the trading week that was documents how that shift in the forward looking focus developed during the trading week.

Monday, 22 August 2022

• Fed minions Jackson Hole conference becomes center of investor focus:
• Forecast for Powell's mountain resort trip: High inflation, limited visibility
• Fed to slow to 50 bps hike in September; recession worries grow: Reuters poll
• Inflation hitting hard in Mexico, United Kingdom:
• Mexico's inflation expected to hit 8.51% in first half of August: Reuters poll
• UK inflation to top 18% in early 2023, Citi warns
• Bigger trouble developing in the Eurozone:
• German recession increasingly likely, Bundesbank says
• German exports beyond the EU slump in July
• Bigger stimulus developing in China:
• China set to lower lending benchmarks Monday to revive wobbly economy
• Major Chinese banks urged to maintain stable loan growth, central bank says
• China steps up easing, cuts lending benchmarks to revive faltering economy
• BOJ minions see Japan's economy getting worse:
• BOJ seen cutting growth forecasts on soft spending, says ex-central bank executive
• As Japanese manufacturing fades, a factory town fights to stay alive
• Wall Street ends sharply lower on fears of aggressive Fed

Tuesday, 23 August 2022

• Signs and portents for the U.S. economy:
• U.S. private sector activity contracts again in August, survey shows
• U.S. new home sales tumble to 6-1/2-year low; prices still high
• Fed minions putting bigger rate hikes on the table:
• Two Fed bank boards wanted 100-basis-point discount rate rise in July
• Fed's Kashkari says his biggest fear is inflation will be more persistent
• Bigger trouble developing in the Eurozone, United Kingdom:
• Euro zone business activity contracted again in Aug, outlook bleak
• Euro zone slide towards recession pins euro to 20-year low
• UK factory output falls for first time since Feb 2021 - CBI
• ECB minions rethinking plan to hike rates:
• ECB must be prudent with rates hikes as recession risk rises: Panetta
• Wall Street ends down as investors eye slowing economy

Wednesday, 24 August 2022

• Signs and portents for the U.S. economy:
• Brent oil climbs above $100 a barrel on potential OPEC cuts
• U.S. new vehicle prices to hit record high despite rising interest rates
• Fed minions get ready to party the only way central bankers can!
• Central bankers head to U.S. mountains with a bad case of inflation reflux
• Investors see no Fed pivot, brace for hawkish Powell message in Jackson Hole
• Bigger trouble, stimulus developing in China:
• China's jobless turn to car boot sales as COVID-hit economy stalls
• China's unemployment insurance payouts hit record high in June
• China to take more steps to support economy -state media cites cabinet
• Wall Street ends higher, with all eyes on Jackson Hole

Thursday, 25 August 2022

• Signs and portents for the U.S. economy:
• Revision shows mild U.S. economic contraction in second quarter
• U.S. consumers borrow at record levels as car prices surge - Experian
• Fed minions described as having been wearing kid gloves, trying to shift focus to 2022-Q3:
• Fed officials: no call yet on 50 vs 75 bps rate hike next month
• Fed's Powell leaves kid gloves behind as he saddles up for Jackson Hole
• Fed's Bostic says he's split between 50 bps and 75 bps Sept rise - WSJ
• Fed's George: Too soon to predict size of Sept hike
• Fed's Bullard: Inflation likely to be more persistent than expected
• Fed's Harker: Would like to get rates above 3.4% and 'sit for a while'
• Fed's George: Too soon to predict size of Sept hike
• Bigger trouble developing in Eurozone:
• German economy beats expectations with 0.1% growth in Q2
• BOJ minions determined to keep unending stimulus alive:
• BOJ policymaker vows to keep ultra-low rates, dovish guidance
• ECB minions thinking they may need to think more about inflation:
• ECB accounts show overwhelming inflation concerns
• Wall Street ends sharply up, fueled by Nvidia and Amazon

Friday, 26 August 2022

• Signs and portents for the U.S. economy:
• Oil prices rise on signals OPEC might cut output
• Gasoline price drop restrains U.S. consumer spending; monthly inflation brakes sharply
• Chief Fed minion Powell predicts pain in fight against inflation, other minions fall in line and promise shallow recession:
• Powell sees pain ahead as Fed sticks to the fast lane to beat inflation
• Fed will keep tightening until inflation controlled: Powell
• Fed's Bostic: leaning toward 50 bps hike in Sept -- CNBC
• Fed's Bostic: Powell was preparing for some job losses - Fox Business
• Fed's Mester sees rates above 4%, says Powell speech 'strong' - BBG TV
• Fed's Harker: Any U.S. recession would be shallow
• Bigger stimulus developing in China:
• China regulators tell banks to ramp up lending - sources
• Bigger trouble developing in Japan:
• Japan's factory output likely fell back into contraction in July- Reuters poll
• Japan's wage growth to lag inflation over next 12 months: Reuters poll
• ECB minions thinking more about bigger rate hikes:
• Some ECB policymakers want 75 basis point hike discussed in Sept, sources say
• ECB's Knot says he favors large rate hikes -NOS interview
• Wall Street ends in a hole after Powell's Wyoming speech
• Analysis-Investors shun risk as Fed pushes higher-for-longer rates

After Fed Chair Jerome Powell got done speaking on Friday, 26 August 2022, the CME Group's FedWatch Tool's projections of the Fed's future interest rate hikes registered big changes in investor expectations, confirming the Lévy flight event resulting from investors resetting their time horizon. Instead of a half point rate hike in September (2022-Q3), the probability of a three-quarter point hike rose over 50% as investors expectations changed for this quarter. Looking further forward in time, that hike would be followed by a half point rate hike in November (2022-Q4), after which, investors think the Fed will hold off on more rate hikes until February 2023 when they anticipate a quarter point rate hike. That will put the Fed's target for the Federal Funds Rate in the 3.75-4.00% range, which is where investors are now expecting the Fed's series of rate hikes will top out.

Meanwhile, the Atlanta Fed's GDPNow tool's forecast for real GDP growth in 2022-Q3 held steady at 1.6%, so we can rule out changes in the outlook for the U.S. economy as a significant contributing factor to what happened with stock prices during the week. What happened was caused by investors drawing in their focus from 2023-Q1 to 2022-Q3 in reaction to Powell's Jackson Hole remarks.