One Car, Two Drivers for the S&P 500

The final week of April 2020 showed the two drivers for the S&P 500 (Index: SPX) now has. In the first half of the week, the index rose over 103 points from its previous week's closing value to peak at 2,939.51 on Wednesday with the anticipation the Fed would continue providing the support it has, which it delivered that day, successfully counteracting the stream of disappointing news being announced by the S&P 500's component firms.

And then it dropped 106 points to end the week at 2,830.71, as the disappointing stream of news took over in the market's drivers seat, sending the market down lower than it ended the previous week. That, in a nutshell, is the metaphor that describes what happened in the market last week.

Here's the latest update to the alternative futures spaghetti forecast chart, where we've adjusted the vertical scale to better see the dividend futures-based model's projections.

Alternative Futures - S&P 500 - 2020Q1 and 2020Q2 - Standard Model - Snapshot on 1 May 2020

The amazing thing is that the level of the S&P 500 is consistent with investors focusing on 2020-Q4 in today's upside-down market environment, defined by its negative amplification factor. That level happens to align with the center of the latest redzone forecast, which we arbitrarily set up with the assumption investors would be focusing on 2020-Q4 at this time two weeks ago.

That projection was based on the idea the Fed would be able to sustain its policies enabling the upside-down market for at least a couple of weeks. But will that situation be able to continue in the face of what's happening with the negatively-changing outlooks for so many S&P 500 firms?

The redzone forcast shows what the likely future trajectory of the S&P 500 would follow if it does. But if the Fed is unable to sustain the results of the policies that have made the amplification factor negative in the current environment, the level of the S&P 500 will move outside that indicated range. What that means is we may have a tool to assess how effective the Fed's policies are in the eyes of investors for countering the coronavirus recession's impact on the economy.

What will decide whether the Fed's efforts are successful in staying in the market's driver seat is the never-ending, random onset of new information. Speaking of which, here are the more notable headlines we found in last week's newsflow.

Monday, 27 April 2020
Tuesday, 28 April 2020
Wednesday, 29 April 2020
Thursday, 30 April 2020
Friday, 1 May 2020

If you're accessing this article on a site that republishes our RSS news feed, we've been appending updates to our regular weekly analysis when the market has been experiencing interesting levels of volatility, which we define as changing in value by 2% or more from the previous day's closing value. If the market sees that kind of movement during the week of 4 May 2020 through 8 May 2020, please click here and scroll down to the bottom to catch up with our latest analysis the following morning.

Finally, Barry Ritholtz outlines the positives and negatives he found both inside and outside the week's markets and economy-related news. He also has a 2,500 word article in the latest issue of BusinessWeek arguing now is the time to "Go Big" in setting the fiscal policies that will come out from the coronavirus recession.