The fourth trading week of May 2023 had started out to be a gloomy one for the S&P 500 (Index: SPX). Several Federal Reserve officials signaled early in the week they were considering continuing the Fed's ongoing series of rate hikes in June because of their concerns U.S. inflation has not sufficiently abated.

That potential was enough to send the index down nearly 1.9% from the previous week's close by Wednesday, 24 May 2023.

But the fear that dragged stock prices down reversed during the next two trading days, as a "Unprecedented. Cosmological. Unfathomable." earnings report and outlook from Nvidia (NASDAQ: NVDA) sparked a speculative fury benefiting information technology firms advancing on the potential of their new Artificial Intelligence (AI) systems.

That speculative fury drove the level of the S&P 500 some 2.2% higher from where it bottomed, enough to boost the index by 0.3% from the previous week's close to 4205.45, its highest level to date in 2023. And that was *despite* Friday, 26 May 2023's confirmation U.S. inflation is running hotter than expected, all but guaranteeing the Fed will hike the Federal Funds Rate in June 2023.

That volatile action is shown in the latest update to the alternative futures chart, where we find the index' trajectory is still well within the redzone forecast range.

More stuff happened during the week that was, which we've captured in the week's market-moving headlines. Once again, we've all but omitted headlines related to the debt ceiling debate in the U.S., which still isn't moving the needle for stock prices in any meaningful way.

Monday, 22 May 2023

• Signs and portents for the U.S. economy:
• Oil rises 1% as supplies shrink, demand seen higher
• Inflation has eroded U.S. households' financial security, Fed survey shows
• Fed minions signal rate hikes are coming back on the table, say bank problems aren't over, expect unemployment to rise:
• Fed's Kashkari open to holding rates steady in June, WSJ reports
• Fed's Kashkari cautions against all-clear on banking woes
• Fed's Daly offers no hint on prospect of June rate hike
• Fed's Daly: Expects unemployment rise as price of controlling inflation
• Bullard: Rates may still need to rise another half-point this year
• Bigger trouble developing in Asia:
• Japan March core machinery orders fall for 2nd straight month
• South Korea May 1-20 exports fall 16.1% on year
• ECB minions excited to keep hiking rates higher:
• ECB's de Cos still sees 'some way to go' on policy tightening
• S&P 500 Rises 0.02% to 4192.63

Tuesday, 23 May 2023

• Signs and portents for the U.S. economy:
• Oil rises as US gasoline supplies tighten, Saudi says: 'watch out'
• US new home sales, business activity rise to 13-month highs
• Former Fed minion worries about wage inflation, Fed minions' choice to focus on boosting jobs rather than inflation did damage:
• Ex-Fed chief Bernanke says labor costs becoming more prominent in inflation
• Fed's jobs-weighted framework caused more problems than it fixed -research
• Growth signs developing in Japan, Eurozone:
• Japan's factory activity expands for first time in 7 months- PMI
• Euro zone business growth solid in May but shows signs of easing -flash PMI
• Services drive acceleration in German business activity in May -flash PMI
• French business activity grows at slowest pace in four months in May - flash PMI
• ECB minions urged by German bankers to keep hiking rates:
• ECB must keep hiking to tame inflation 'poison', Deutsche Bank CEO says
• ECB needs several more rate hikes, Bundesbank chief Nagel says
• S&P 500 Falls 1.12% to 4145.58
• Visa, Intel share losses contribute to Dow's nearly 200-point drop

Wednesday, 24 May 2023

• Signs and portents for the U.S. economy:
• Oil prices gain 2% on falling U.S. stockpiles, Saudi warning
• Fed minions thinking about more rate hikes, starting to get on board with resetting inflation target higher:
• Fed agreed need for more rate hikes after May meeting was 'less certain'
• Murmurs grow within Fed about tweaking 2% target once inflation recedes
• Fed's Waller sees a rate 'hike' or a 'skip' in June, but no 'stop'
• Fed's Waller: inverted yield curve may signal belief in falling inflation
• Central bankers reaching the end of the line for rate hikes:
• NZ central bank signals done raising rates after hiking to 14-year high
• Taiwan central bank to weigh inflation, GDP in next rate move
• Wall Street sinks as stocks tumble worldwide
• US action on short-sellers likely in 'next few months' -DOJ official

Thursday, 25 May 2023

• Signs and portents for the U.S. economy:
• U.S. weekly jobless claims rise moderately; first-quarter GDP growth revised up
• DBRS Morningstar puts U.S. triple-A rating on downgrade warning
• Fitch puts US rating on negative watch as debt deadline looms
• Oil settles lower as Russia downplays additional OPEC+ cuts
• US labor market resilient; declining profits a red flag for economy
• Fed minions still thinking about pausing rate hikes:
• Fed's Collins open to pausing rate hikes at June meeting
• Bigger trouble developing in the Eurozone:
• German economy entered recession as inflation hurts consumers
• BOJ minions thinking about changing up never-ending stimulus as economic outlook improves:
• BOJ's Ueda says targeting shorter-duration bond yield among future options
• BOJ may abandon bond yield cap this year - govt panellist
• Japan raises view on economy for 1st time since July 2022
• Wall Street ends higher as Nvidia sparks rush for AI stocks
• Nvidia close to becoming first trillion-dollar chip firm after stellar forecast

Friday, 26 May 2023

• Signs and portents for the U.S. economy:
• Oil prices up amid OPEC+ supply cut uncertainty
• US consumer spending surges in April; inflation heats up
• Fitch puts Fannie Mae, Freddie Mac on negative watch as US debt deadline looms
• As US credit risk looms, former S&P officials see 2011 downgrade as vindicated
• US core capital goods orders unexpectedly rebound in April
• IMF says U.S. should tighten fiscal policy to help cut persistent inflation
• Fed minions get data to make them rethink pausing rate hikes:
• Strong US consumer spending, inflation readings put Fed in tough spot
• Fed 'pause' on rate hikes in doubt after strong US data
• Instant view: Stubborn US April PCE inflation revives focus on June Fed hike
• BOJ minions expected to keep never-ending stimulus alive until sometime in 2024:
• BOJ will keep YCC until 2024, three-quarters of economists say: Reuters poll
• ECB minions getting less worried about inflation:
• ECB's Lane pushes back on core inflation worries
• Wall Street rallies, European shares see biggest gain in 2 months
• The tech trade is back, driven by A.I. craze and prospect of slowing Fed hikes
• The S&P 500 is up 8% this year, but most stocks are down—here’s what it means for your money

Following personal consumption expenditure data that revealed higher than expected inflation, the CME Group's FedWatch Tool now projects the Federal Reserve will hike the Federal Funds Rate by a quarter point when its Open Market Committee meets on 14 June 2023. That would bring the Federal Funds Rate to a target range of 5.25-5.50%, which the tool anticipates will be the peak for the series of rate hikes that began in March 2022. However, the FedWatch Tool anticipates the Fed will then wait until its 1 November (2023-Q4) meeting to initiate a series of quarter point rate cuts at six-to-twelve-week intervals to address building recessionary conditions in the U.S. economy.

The Atlanta Fed's GDPNow tool estimate of the real GDP growth rate for 2023-Q2 plunged to +1.9% from the +2.9% growth rate it anticipated a week earlier.

Image credit: Bullfight at San Marcos Fair, Aguascalientes, Mexico by Tomas Castelazo via Wikimedia Commons. Creative Commons. Attribution-ShareAlike 3.0 Unported (CC BY-SA 3.0).

The S&P 500 (Index: SPX) rose 1.65% over its previous week's closing value to end the third week of May 2023 at 4191.98.

It rose primarily as a result of an improved outlook for regional bank stocks, which notably surged during the week. The biggest market moving news of the week came on Wednesday, 17 May 2023, after news Western Alliance had seen its deposits grow by more than $2 billion was disclosed. That announcement was taken as a positive sign that the solvency problems facing regional banks because of the Federal Reserve's series of interest rate hikes is less widespread than had been feared.

That promising development was enough to put the trajectory of the S&P 500 just a little below the middle of the alternative futures chart's redzone forecast range. Which is to say that stock prices are behaving predictably. It is also to say that stock prices are not behaving exceptionally in any way.

We're making that point because the past week's market-related headlines have been jam-packed of references to the debt ceiling debate in Washington, D.C. So many, in fact, it seems to be more the result of an editorial decision to cram it into as many headlines as possible, regardless of whether it's appropriate, than it does of any real market-moving news events. Through 19 May 2023, we find little to no evidence that political debate is having any meaningful material affect on the trajectory of stock prices.

The ongoing situation with regional banks because of their solvency issues however is having more noticeable impact. Here are the past week's market-moving headlines:

Monday, 15 May 2023

• Signs and portents for the U.S. economy:
• Oil gains over 1%, ends losing streak on tightening supplies
• New York factory activity slumps in May - NY Fed
• In the Market: Why US regional banks are doomed to a doom loop
• Some Fed minions claim they may hike rates higher; others signal they won't:
• Fed officials expect interest rates to remain high, possibly rise
• Fed's Barkin not yet convinced inflation heading steadily lower
• Fed's Bostic: if vote on policy were today, would vote to hold steady
• Fed's Goolsbee says May rate hike was 'close call' for him
• Bigger stimulus developing in China:
• China central bank to keep liquidity ample, support economic recovery
• Bigger trouble developing in the Eurozone, ECB minions thinking their rate hikes aren't denting inflation:
• Euro zone industry output falls sharply, with Ireland plunge
• ECB rate hike impact on inflation small so far, but more coming: ECB Bulletin
• BOJ, JapanGov minions thinking they might change never-ending stimulus:
• Japan govt gives lukewarm response to new BOJ chief's plan for policy review
• Japan's govt, central bank debate whether sustained exit from deflation is near
• Japan's wholesale inflation slows, may ease pressure on BOJ
• U.S. stocks higher at close of trade; Dow Jones Industrial Average up 0.14%
• Focus shifts to retailers as U.S. quarterly results hit final leg

Tuesday, 16 May 2023

• Signs and portents for the U.S. economy:
• Oil dips as weaker China, US economic data offset IEA demand forecast
• US consumer spending appears solid early in second quarter
• US manufacturing production surges in April on motor vehicles
• US homebuilder sentiment rises to 10-month high in May
• Fed minions trying hard to claim they're not done with rate hikes, say they're going to get better at regulating banks:
• Fed's Mester says central bank committed to getting back to 2% inflation
• Fed's Mester says not yet at point where it can 'hold' rates
• Fed's Barkin: 'Comfortable' with more hikes if needed - Bloomberg TV
• US bank regulators vow tougher rules, oversight after bank failures
• Bigger trouble developing in China:
• China's April data show economic recovery losing steam, testing policymakers
• ECB minions wonder why people don't trust them so much anymore, see near zero growth in Eurozone:
• Central banks have lost a degree of trust, ECB's Makhlouf says
• German investor morale plunges as recession fears rise
• Euro zone Q1 GDP growth confirmed at 0.1% q/q, Q1 exports jump
• German economic growth to remain muted in near term - IMF
• Wall Street declines after Home Depot outlook, US retail sales
• Home Depot cuts forecasts, signals weakness ahead for big US retailers

Wednesday, 17 May 2023

• Signs and portents for the U.S. economy:
• As household budgets tighten, big brands double down in dollar stores
• US single-family building permits at 7-month high; housing slump persists
• U.S. single-family housing starts rise in April; March revised down
• Oil settles up $2 on optimism about US debt ceiling, demand
• Economists say Fed minions done with rate hikes, Fed's inspector general grilled over failed oversight of Fed minions' investments:
• Fed to keep rates untouched this year; risk of U.S. default high: Reuters poll
• Fed's watchdog defends work before Senate amid questions over his independence
• Bigger trouble developing in China:
• China's domestic travel recovery marred by anti-spending 'special forces'
• China's home prices rise at slower pace as demand ebbs
• Japan's export growth hits two-year low on weak China demand
• BOJ minions see Japan exit recession:
• Japan emerges from recession on post-COVID consumer rebound
• ECB minions see inflation rise despite their rate hikes:
• Euro zone inflation ticks up in April
• Wall Street gets a revivifying cup of Joe as US banks brighten
• PacWest, Western Alliance lead rebound in US regional lenders

Thursday, 18 May 2023

• Signs and portents for the U.S. economy:
• US manufacturers can't shake that inflation feeling even as supply snarls ease
• Oil prices settle down 1%; strong US data boosts dollar
• US weekly jobless claims fall; labor market defying recession fears
• U.S. existing home sales post second straight monthly decline
• Fed minions claim they're not done hiking rates yet:
• Fed's hawks make a pitch against a rate-hike pause
• Fed's Logan: data does not yet show June pause is appropriate
• Fed's Jefferson: Inflation "too high," but impact of high rates not full felt yet
• Owens Corning hits 52-week high as S&P 500 advances to YTD peak
• Analysis-Overexposed US regional banks could sell commercial property loans

Friday, 19 May 2023

• Signs and portents for the U.S. economy:
• Oil rebounds on fading risk of U.S. debt default
• Yellen told bank CEOs more mergers may be necessary, CNN reports
• Translation: Yellen believes more bank failures are developing.
• Fed minions thinking about what to do with rates next, reform of bank rules:
• Fed's Powell says risks more balanced, June policy decision unclear
• Fed's Powell says tighter credit conditions ease rate hike pressure
• Fed's Williams says natural rate of interest still low despite pandemic
• Fed's Williams says world of low interest rates still prevails
• Fed's Williams declines to connect monetary policy outlook to neutral rate view
• Fed's Bowman backs 'targeted' bank rules reform but not 'radical' change
• BOJ minions thinking about how to end never-ending stimulus slowly:
• Academics weigh in on how BOJ's Ueda can exit easy policy
• BOJ's Ueda vows to maintain easy policy, rules out chance of early exit
• Japan's inflation stays above BOJ's target, key gauge hits four-decade high
• ECB minions worried about possible bank failures, excited about keeping interest rates high:
• ECB eyes additional steps to tackle bank deposit risks
• ECB needs to keep interest rates 'sustainably high' to combat inflation - Lagarde
• Bank stocks dip as Janet Yellen calls for more mergers - report
• Markets revise expectations for Fed's expected pause in June, future rate cuts

The CME Group's FedWatch Tool continues to indicate investors believe the Fed has reached the end of the series it began in March 2022 to combat President Biden’s inflation. However, the FedWatch Tool has pushed back its projection for how long the Fed will hold the Federal Funds Rate at a target range of 5.00-5.25%. It now anticipates will wait until its 1 November (2023-Q4) meeting to initiate a series of quarter point rate cuts at six-to-twelve-week intervals to address building recessionary conditions in the U.S. economy.

The Atlanta Fed's GDPNow tool projects a real GDP growth rate of +2.9% in 2023-Q2, up from the +2.9% growth rate it anticipated a week earlier.

Image credit: Deposit Into Piggy Bank Savings Account by Ken Teegardin via Wikimedia Commons. Creative Commons. Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0).

After the previous week's Fed-driven volatile action, investors got some relief in the second week of May 2023.

Despite the relative stillness, there wasn't enough positive news to offset the negative to boost the U.S. stock market higher. The S&P 500 (Index: SPX) closed the week at 4124.08, down 0.3% from the previous week's level.

The market's most distressed sectors continue to be those most negatively impacted by the Fed's series of rate hikes, which includes regional banks, commercial real estate investment trusts, and financial services firms. That assessment is based on our regular sampling of firms announcing reduced dividend payouts this month, which includes smaller firms that aren't found in the S&P 500.

Meanwhile, the larger cap firms that make up the index have been turning in better than expected earnings, so the news is not all gloomy. We'll revisit the earnings outlook for the S&P 500 later this week, but first, here's the latest update to the alternative futures chart,

The trajectory of the S&P 500 continues to track well within the redzone forecast range indicated on the chart.

But then, that's exactly what should be expected for such an overall uneventful week. Here is our summary of what passed for the week's market-moving headlines.

Monday, 8 May 2023

• Signs and portents for the U.S. economy:
• Bank buyers expect sweeteners as US government sets new bar
• Bigger trouble developing in the Eurozone:
• German industrial output slumps, recession fears rise
• Mixed economic signs for global economy out of Asia:
• China's exports seen rising in April but at slower pace, outlook challenging
• Taiwan April exports slip for 8th month, but beat forecasts
• BOJ minions worried about inflation overshooting their target:
• Bank of Japan debated risk of inflation overshoot in March
• Japan's service activity grows at record pace in April - PMI
• ECB minion doesn't say anything insightful:
• Euro zone inflation will slow but momentum still high: ECB's Lane
• Wall Street ends near flat ahead of inflation data

Tuesday, 9 May 2023

• Signs and portents for the U.S. economy:
• Oil recoups losses on plans for SPR refill, higher seasonal demand
• U.S. home buyers persevere despite high rates, prices: study
• Fed minions try to pretend they're not done with rate hikes, claim economy is slowing in "orderly" manner:
• Premature for Fed to call end to rate hikes with inflation still high, Williams says
• Fed's Jefferson says economy slowing in "orderly" manner
• Bigger trouble developing in China:
• China's shrinking imports, slower exports growth darken economic outlook
• BOJ minions say never-ending stimulus will never end, get reason to continue:
• BOJ's Ueda says yield control will end when price goal achievement foreseen
• Japan's spending downturn, wages decline heighten pressure on economy
• ECB minions excited by high rates, thinking about hiking them higher:
• ECB may need to raise rates for longer than anticipated: Kazimir
• ECB's Schnabel sees more rate hikes until core inflation declines too
• Wall Street closes down as focus shifts to inflation data, debt talks

Wednesday, 10 May 2023

• Signs and portents for the U.S. economy:
• US credit crunch didn't start with SVB collapse, and may not end there
• US consumer prices increase solidly in April
• US April CPI rise gives Fed little room for pivot soon
• Fed minions expected to pivot away from rate hikes sooner after better-than-expected inflation report:
• US April CPI rise gives Fed little room for pivot soon
• BOJ minions say they'll say when they'll end never-ending stimulus, see faster growth in Japan:
• BOJ's Ueda vows to communicate exit path once inflation sustainable
• Japan GDP growth likely accelerated in Q1 on robust services consumption- Reuters poll
• Non-ECB minion says ECB will be done with rate hikes this year, ECB minions say their rate hikes will be "more marginal" and are near peak:
• Greece's Stournaras sees ECB rate hikes ending this year
• Future ECB rate moves will be "more marginal", says Villeroy
• ECB's Centeno says interest rates near peak, could ease in 2024
• Nasdaq rallies as investors cheer inflation data, Alphabet
• Traders bet on end to Fed rate hikes after April inflation data
• Analysis: Inflation may not be cooling fast enough to justify stock valuations

Thursday, 11 May 2023

• Signs and portents for the U.S. economy:
• US weekly jobless claims hit 1-1/2-year high; inflation subsiding
• US producer prices increase moderately in April
• Fed minions claim they'll keep interest rates high for "extended" time, admit climate change isn't serious financial risk:
• Climate change not 'serious risk' to financial stability, Fed's Waller says
• Fed's Kashkari says tight monetary policy may be needed for 'extended' time
• Fed headed for a pause, then rate cuts, traders bet
• Bigger trouble developing in Asia:
• South Korea think tank cuts 2023 growth forecast due to poor exports
• China's slow consumer inflation, deepening factory gate deflation to test policy
• Slump in China bank loans, prices raise more worries about recovery, adds pressure on central bank
• ECB minions think services are where their inflation problem is:
• ECB's de Guindos singles out services as top inflation worry
• Euro zone consumers raise inflation expectations - ECB survey
• Dow, S&P 500 fall with Disney; PacWest leads regional banks lower
• Disney shares fall most since Iger's return after streaming subscriber losses
• PacWest shares plunge after it reports drop in deposits
• Deposit outflows after SVB collapse concentrated among 'super-regionals' - New York Fed study

Friday, 12 May 2023

• Signs and portents for the U.S. economy:
• Oil prices rise as supply deficit counters demand fears
• Record U.S. crude exports, rising shale output boosts oil flow to Houston
• Fed minions say they're not done fighting President Biden's "insidious" inflation with rate hikes, claiming they're on the right track:
• Fed policy on right track, but inflation still too high, officials say
• Fed's Jefferson: inflation 'insidious,' need to bring it down
• Fed's Bowman: more policy tightening likely appropriate
• Fed's Bullard: disinflation prospects 'good' but not guaranteed
• Stocks Fall as Banking, Inflation Concerns Linger
• Indexes end down with tech-related shares; consumer sentiment falls

As in previous weeks, we've omitted the week's news coverage of the debt ceiling debate in Washington, D.C. in this week's summary. For all the headlines being generated about it, there's little sign it's contributing more than minimal noise to the trajectory of stock prices at this point of time. That may change and, if and when it does, we'll take note of whatever news it is that moves the needle for stock prices.

The CME Group's FedWatch Tool continues to indicate investors believe the Fed has reached the end of the series it began in March 2022 to combat President Biden’s inflation. The FedWatch Tool continues to project the Fed will hold the Federal Funds Rate at a target range of 5.00-5.25% until its 20 September (2023-Q3) meeting, at which time the Fed will initiate a series of quarter point rate cuts at six-to-twelve-week intervals to address building recessionary conditions in the U.S.

The Atlanta Fed's GDPNow tool projects a real GDP growth rate of +2.7% in 2023-Q2, up slightly from the +2.5% growth rate it anticipated a week earlier.

Image credit: Photo by Joshua J. Cotten on Unsplash.

In closing at 4136.25 in the trading week ending on Friday, 5 May 2023, the S&P 500 (Index: SPX) ended the week down just 0.8%. But that number doesn't quite express the extent to which volatility affected the index during the week that was.

The biggest market-moving news of the week was the Federal Reserve's quarter point rate hike, which its Federal Open Market Committee accompanied with a statement indicating they are considering changing direction. Despite being the biggest news covered in the media, because this move was well anticipated, it had very little effect on stock prices when it was officially announced at 2:00 PM EDT. That calm lasted for all of an hour, as stock prices began falling sharply after 3:05 PM.

What sent stock prices falling was new information that emerged during Federal Reserve Chair Jerome Powell's press conference, which had begun at 2:30 PM. We know from long observational experience that stock prices will begin reacting to news it wasn't expecting within 2-4 minutes after it arrives.

The new information that sent stock prices tumbling came in response to a question by Bloomberg Radio and Television's Michael McKee. Here's the full exchange:

MICHAEL MCKEE. Michael McKee for Bloomberg Radio and Television. Can you tell us something about what your policy reaction function is, your policy framework is going forward? When you look at the economy at the next meeting, are you looking at incoming data, which is, by definition, backward looking? Are you going to be forecasting what you think is going to happen? Are you ruling out the rate cuts that the market has priced in?

CHAIR POWELL. I didn't catch the last part. Rolling.

MICHAEL MCKEE. Markets have priced in rate cuts by the end of the year. Do you rule that out?

CHAIR POWELL. Yes. I'm sorry. Okay. I got it. So what are we looking at? I mean, we look at a combination of data and forecasts. Of course, the whole idea is to create a good forecast based on what you see in the data. So we're always, always looking at both. You know, and it will -- of course it'll be the obvious things. It'll be readings on inflation. It'll be readings on wages, on economic growth, on the labor market, and all of those many things. I think a particular focus for us going now over the past six, seven weeks now and going forward is going to be what's happening with credit tightening, are small- and medium-sized banks tightening credit standards, and is that having an effect on loans, on lending? And, you know, so we can begin to assess how that fits in with monetary policy. That'll be an important thing. I just -- you know, we'll be looking at everything. It's -- again, I would just point out we've raised rates by five percentage points. We are shrinking the balance sheet. And now we have credit conditions tightening, not just in the normal way but perhaps a little bit more due to what's happened. And we have to factor all of that in and make our assessment of -- you know, of whether our policy stance is sufficiently restrictive. And we have to do that in a world where policy works with long and variable legs. So this is challenging. But, you know, we will make our best assessment, and that's what we think.

MICHAEL MCKEE. What about the idea of rate cuts?

CHAIR POWELL. Yeah. So we -- on the Committee, have a view that inflation is going to come down, not so quickly, but it'll take some time. And in that world, if that forecast is broadly right, it would not be appropriate to cut rates, and we won't cut rates. If you have a different forecast and, you know, markets -- or have been from time to time pricing in, you know, quite rapid reductions in inflation, you know, we'd factor that in. But that's not our forecast. And, of course, the history of the last two years has been very much that inflation moves down. Particularly now, if you look at non-housing services, it really, really hasn't moved much. And it's quite stable. And, you know, so we think we'll have to -- demand will have to weaken a little bit, and labor market conditions -- conditions may have to soften a bit more to begin to see progress there. And, again, in that world, it wouldn't be -- it wouldn't be appropriate for us to cut rates.

Powell's indication the Fed would hold rates higher for longer than investors' previous expectations sent stocks much lower very quickly, as investors adapted their expectations of the Fed's next monetary policy steps. The S&P 500 went from being up half a point from where it opened to close the day down 0.7%, all in less than an hour. It then fell further the next day, only recovering on Friday, 6 May 2023 on the strength of Apple's positive earnings news and the stabilization of expections for when the Fed would begin cutting interest rates.

More on that later. The combined effect of all this activity was to put the S&P 500's trajectory onto a volatile ride, only to end the week just a bit below the mid-point of the redzone forecast range on our alternative futures chart:

We've already covered the week's biggest market-moving news, but other stuff happened that also affected the forward-looking outlook for investors during the week that was. Here's our summary of those headlines:

Monday, 1 May 2023

• Signs and portents for the U.S. economy:
• The road to First Republic Bank's collapse
• US construction spending rebounds in March on nonresidential structures
• US manufacturing contracts again in April, but pace slows
• Bigger trouble developing in China, South Korea, Japan:
• China factory activity unexpectedly shrinks in April
• China non-manufacturing activity expands more slowly in April - official PMI
• South Korea factory activity shrinks in April, marks longest downturn in 6 years - PMI
• S.Korea exports suffer longest losing streak in 3 years, China sales tumble
• Japan's factory activity contracts at slower pace in April - PMI
• Wall Street near flat after First Republic news, awaiting Fed

Tuesday, 2 May 2023

• Signs and portents for the U.S. economy:
• US labor market softens as job openings drop, layoffs at highest level in over 2 years
• US factory orders rebound on aircraft in March
• White House blames Fed minions' rate hikes for bank failures, Fed minions say they want to lower rates after inflation is low again:
• Exclusive: White House's Boushey - Fed interest rates having negative effect on banking sector
• Fed in stride to pole-vault 5% policy rate, then perhaps catch its breath
• Key Fed officials see low-rate world as likely to return one day
• Bigger trouble developing in the Eurozone:
• Euro zone factory downturn deepened in April - PMI
• German manufacturing contracts in April but output ticks up -PMI
• French manufacturing contracts further in April - final PMI
• Italy's manufacturing sector contracts sharply in April - PMI
• Euro zone inflation picks up but core unexpectedly slows
• Central banks may not be done with rate hikes:
• Australia central bank stuns with 25-bps hike, warns more might be needed
• U.S. banking woes a major factor behind Bank of Korea rate freeze
• ECB minions expected to deliver smaller rate hike:
• Soft lending and inflation data pave way for smaller ECB hike
• Indexes fall 1% as regional banks tumble, investors fret before Fed
• Quotes: US regional banks fall as FRC failure shakes faith in banking sector recovery

Wednesday, 3 May 2023

• Signs and portents for the U.S. economy:
• Oil falls 4%, extending losses after Fed rate hike
• US services sector still growing; inflation remains sticky
• Fed minions hike rates one last time, cuts expected to start in September 2023:
• Fed raises rates, opens door to pause in tightening cycle
• Instant View: Fed hikes another 25 basis points, hints it may be the last increase
• Column-Quadruple whammy whips June Fed rate hike off the table: McGeever
• US rate futures price in Fed pause in June, July; see September cut
• ECB minions see green light to hike rates higher:
• ECB to raise interest rates for a seventh time in inflation fight
• Euro zone unemployment falls to 6.5% in March
• Pandemic-sized euro surge now a boon for ECB: Mike Dolan
• Wall Street ends down on nagging uncertainty about Fed rate path
• S&P cuts First Republic's credit rating, says default a 'virtual certainty'

Thursday, 4 May 2023

• Signs and portents for the U.S. economy:
• Oil stable after smaller ECB hike, demand woes linger
• U.S. weekly jobless claims rise as higher borrowing costs cool demand
• US productivity drops in first quarter; labor costs jump
• Fed minions done for now with rate hikes:
• Fed pause baked in after "dovish" hike
• Mixed economic signs developing in China:
• China's skidding factory sector taps brakes on economic recovery
• Australia's exports to China hit record highs as barriers ease
• Mixed economic signs in the Eurozone:
• German exports fall significantly more than expected in March
• Euro zone April business activity grows on strong services demand - PMI
• Upturn in German services sector activity continues in April
• Euro zone producer prices fall m/m in March
• ECB minions goes small with new rate hike, will start shrinking its balance sheet:
• ECB raises rates by 25 bps in inflation fight
• ECB slows rate hikes and keeps options open
• Analysis-Markets bet ECB will pause hikes soon as economy feels rate pinch
• ECB to stop reinvesting cash in largest bond scheme
• Euro zone bond yields and euro fall after ECB hikes rates
• Analysis-Fed up with shrinking savings, Europeans drain billions from banks
• Wall Street ends down as PacWest fuels fears of deeper bank crisis
• FDIC plans to hit big banks with fees to refill deposit insurance fund - Bloomberg News
• Fed data shows failed bank First Republic was key central bank borrower

Friday, 5 May 2023

• Signs and portents for the U.S. economy:
• US job growth beats expectations in April; unemployment rate falls to 3.4%
• US restaurants finally get labor relief with more workers seeking jobs
• Fed minions hint they're pausing interest rate hikes:
• Fed's Goolsbee: 'way too premature' to expect June rate hike
• Fed's Bullard: 'Open mind' on June meeting, though rates still may need to rise
• St. Louis Fed's Bullard says rate increase this week was good 'next step'
• Bigger trouble developing in the Eurozone:
• German industrial orders slump unexpectedly in March
• Euro zone inflation could hold above target -ECB survey
• ECB minions getting results but not what they wanted, promise to keep doing what they're doing:
• ECB policymakers promise more hikes to beat inflation
• UBS raises expectations for ECB's terminal rate; SocGen sees it peaking at 4%
• Euro zone companies are slowing price hikes - ECB poll
• Euro zone inflation could hold above target -ECB survey
• Euro zone retail sales fall more than expected in March
• Dow has best day since Jan. 6 after Apple rally, jobs data
• Apple's results send shares surging to nine-month high
• Republic First Bancorp cuts jobs in preparation to exit mortgage business

After the Fed’s quarter point rate hike on 3 May 2023, the target range for the Federal Funds Rate stands at 5.00-5.25%. The CME Group's FedWatch Tool anticipates the Fed will switch gears, with this target range marking the top for the series of rate hikes it initiated in March 2022 to combat President Biden’s inflation. The FedWatch Tool projects the Fed will hold the Federal Funds Rate at this level until its 20 September (2023-Q3) meeting, at which time the Fed will initiate a series of quarter point rate cuts at six-to-twelve-week intervals to address building recessionary conditions in the U.S. As of 5 May 2023, those cuts are expected to reduce the Federal Funds Rate’s target range to 2.75-3.00% by 6 November 2024 (2024-Q4), which is the most distant forecast currently available.

The Atlanta Fed's GDPNow tool projects a real GDP growth rate of +2.5% in 2023-Q2, up from the +1.7% growth rate it forecast a week earlier. The so-called "Blue-Chip" consensus forecast of real GDP growth in the current quarter of 2023-Q2 is more pessimistic with estimates ranging between -1.1% and +1.3%. The central estimate of the Blue-Chip forecast is for +0.2% annualized growth.

Image credit: Photo by Tim Gouw on Unsplash.

Thanks to a much lower than expected advance estimate of GDP and a rising probability of recession getting underway later in 2023, investors bid up stocks in anticipation the Fed's next rate hike, scheduled for 3 May 2023, will be the last of the series of hikes that began in March 2022.

The S&P 500 (Index: SPX) ended the week at 4169.48, rising 0.9% over its previous week's close. In between, stock prices had dived as low as 4,055.99 on Wednesday, 26 April 2023. Contemporary news reports attributed that decline to the combination of weak earnings coming on top of what was expected to be modestly strong economic growth to be reported later in the week, the combination of which would boost the likelihood the Fed would sustain the Federal Funds Rate at its expected peak level for an extended period before reversing course and cutting rates.

What changed that expectation was the worse-than-expected GDP estimate released on Thursday, 27 April 2023, which effectively moves up the expected timetable for rate cuts. That momentum carried through Friday, 28 April 2023, with the S&P 500 rising 2.8% from Wednesday's closing low for the week.

The alternative futures chart shows all that stock price action, but more importantly, shows it puts the level of the S&P 500's trajectory right in the middle of the indicated redzone forecast range.

We've already recapped the week's biggest market-moving headlines, but there was more going on during the week that was. Here's our summary of the major headlines we tracked during the week.

Monday, 24 April 2023

• Signs and portents for the U.S. economy:
• Oil prices settle higher on optimism about fuel demand in China
• Bigger stimulus developing in China
• Exclusive-China guides banks to further cut deposit rates - sources
• Positive growth signs in Eurozone:
• German economy likely grew in Q1, beating expectations - Bundesbank
• BOJ minions' new boss says wants much stronger inflation before considering changes to never-ending stimulus:
• BOJ chief wants 'quite strong' inflation before tweaking yield control policy
• BOJ may conduct long-term review of monetary easing - sources
• ECB minions thinking they'd rather focus on climate change than inflation:
• Climate change fight a 'core duty' for central banks - ECB's Villeroy
• Analysis-Germany's 'very generous' pay deal may complicate ECB's inflation fight
• ECB has travelled most of the way towards higher interest rates - Villeroy
• Nasdaq underperforms on worries about tech earnings ahead

Tuesday, 25 April 2023

• Signs and portents for the U.S. economy:
• US new home sales soar to one-year high in March
• US consumer confidence falls to 9-month low in April
• Oil dips 2% on economic woes and stronger dollar
• BOJ minions excited to keep never-ending stimulus alive, despite inflation:
• BOJ's Ueda vows to keep rates low for now, signals chance of future hike
• Japan's business services inflation hits 8-year high in fiscal 2022
• ECB minions say inflation of Eurozone food prices will slow later in 2023, getting excited about hiking rates again:
• ECB's Villeroy: Food price inflation to start easing in H2
• ECB set to step down to 25 bps move on May 4, at least one more expected- Reuters Poll
• ECB will have to raise rates again on May 4, Lane tells Le Monde
• Wall St ends lower as weak earnings fan fears of economic slowdown

Wednesday, 26 April 2023

• Signs and portents for the U.S. economy:
• Companies' cost inflation is slowing but shoppers may wait for lower prices
• US business spending on equipment weakening as demand for goods slows
• Oil drops nearly 4% as recession fears outweigh US inventory draw
• Bigger trouble, stimulus developing in China:
• China unveils plan to boost employment with a focus on youth
• BOJ minions' new boss thinking about tweaking, keeping never-ending stimulus alive:
• New BOJ chief's first task may be to tweak forward guidance
• Japan's ex-top FX diplomat sees BOJ keeping ultra-low rates this year
• Nasdaq outperforms as investors cheer Microsoft, Dow transports sink

Thursday, 27 April 2023

• Signs and portents for the U.S. economy:
• US economic growth slows in first quarter; weekly jobless claims fall
• US economic growth slows in first quarter as businesses draw down inventories
• Oil prices stabilise after hefty losses
• US pending home sales slump unexpectedly in March
• Fed minions trying to learn something from bank failures:
• Speed of US bank failures to play starring role in Fed, FDIC post-mortems
• Factbox-Fed, FDIC reviews of US bank failures to spotlight problems, fixes
• Bigger trouble, stimulus developing in China:
• China's job market tough, especially for college graduates, vice minister says
• China Jan-Mar industrial profit slump underlines patchy economic recovery
• China regulator to help lower financing costs of small businesses
• BOJ minions see more inflation, vow to keep never-ending stimulus alive for at least another 18 months:
• Consumer inflation in Japan's capital accelerates, keeps BOJ under pressure
• BOJ keeps ultra-low rates, decides to conduct policy review
• BOJ Governor Ueda's comments at news conference
• ECB minions thinking about changing rules for banks, encouraged to keep hike rates:
• ECB's Villeroy and Knot put bank rule changes on the table
• ECB should keep raising rates until mid-2024, EU must tighten fiscal policy -IMF
• Wall Street notches biggest gain in months, Treasury yields rise on solid earnings

Friday, 28 April 2023

• Signs and portents for the U.S. economy:
• US labor costs increase solidly in first quarter
• Crude prices up over 2% on rising U.S. oil demand and lower output
• US consumer spending plateaus; core inflation remains strong
• Fed minions get wage inflation to worry about, on top of fixing bank system oversight:
• High labor costs fuel debate at Fed about what it means for inflation
• Fed plans broad revamp of bank oversight in wake of SVB collapse
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• US regulators vow tougher oversight after SVB, Signature supervision failures
• Bigger trouble, stimulus developing in China:
• China's factory activity likely grew at slower pace in April- Reuters poll
• China to keep up policy support for economy, focus on demand
• Bigger trouble hits in Taiwan:
• Taiwan slips into recession as Q1 GDP hits 14-year low
• Eurozone registers positive, near-zero growth:
• Euro zone grows marginally at start of 2023 after stagnation
• German economy skirts recession, but just for now
• German unemployment rises more than expected in April
• Wall St ends higher, posts weekly, monthly gains on solid earnings, Fed pause hopes
• Amazon's cloud warning rattles investors

The CME Group's FedWatch Tool anticipates the Fed will hike the Federal Funds Rate by a quarter point to a target range of 5.00-5.25% at its upcoming meeting on 3 May (2023-Q2). After that, the FedWatch tool anticipates a series of quarter point rate cuts starting from 20 September (2023-Q3) and continuing at six-to-twelve-week intervals through the CME FedWatch tool's available forecast period, which extends through 25 September 2024 (2024-Q3).

The BEA's initial estimate for real GDP growth in 2023-Q1 is +1.1%, which was substantially below the Atlanta Fed's GDPNow tool's projection of +2.5% for real GDP growth that we recorded last week. It was however closer, yet still below, the so-called Blue Chip consensus of +1.5%. The GDPNow tool has swung around to start looking forward again. As of 28 April 2023, it anticipates +1.7% real GDP growth for the currently playing out quarter of 2023-Q2.

Image source: Photo by Kevin Ku on Unsplash.