Unexpectedly Intriguing!
December 11, 2017

The S&P 500 behaved more as we expected that it would during the first full week of December 2017, with stock prices dipping as investors shifted their forward looking focus to 2018-Q1 in setting current day stock prices.

Alternative Futures - S&P 500 - 2017Q4 - Standard Model - Snapshot on 08 December 2017

But ended up on Friday, 8 December 2017 at a level that would at first appear to be more consistent with their being focused on 2018-Q2. The reason for that has a lot to do with the positive jobs report that came out on Friday, 8 December 2017, which had the official unemployment rate hold steady from the previous month at 4.1%, but which is down a half percent from November 2016. The report was stronger than expected, which appeared to clear the way for the Fed to not just announce that they will hike U.S. short term interest rates this Wednesday, 13 December 2017, but up to three more times in 2018.

The CME Group's FedWatch tool is reflecting that assessment, where after a 100% probability that the Fed will hike rates on this Wednesday (with a 90.2% chance they'll hike them to a target range of 1.25%-1.50%, and a 9.8% chance they'll hike them even higher to the 1.50%-1.75% range), the Fed Funds Rate futures suggest additional hikes in at least the first quarter of 2018 (2018-Q1) and again in the third quarter of 2018 (2018-Q3).

Probabilities for Target Federal Funds Rate at Selected Upcoming Fed Meeting Dates (CME FedWatch on 8 December 2017)
FOMC Meeting Date Current
100-125 bps 125-150 bps 150-175 bps 175-200 bps 200-225 bps 225-250 bps
13-Dec-2017 (2017-Q4) 0.0% 90.2% 9.8% 0.0% 0.0% 0.0%
12-Mar-2018 (2018-Q1) 0.0% 38.6% 54.8% 6.5% 0.1% 0.0%
13-Jun-2018 (2018-Q2) 0.0% 17.9% 44.7% 31.8% 5.3% 0.3%
26-Sep-2018 (2018-Q3) 0.0% 10.3% 32.8% 36.5% 16.9% 3.2%

Since no hike in the Federal Funds Rate would appear to be anticipated for 2018-Q2 at this time, investors have little reason to focus much of their forward-looking attention on this future quarter, which is why we think that they are now primarily focusing on 2018-Q1, where the level of the S&P 500 is still falling within the range that we would anticipate they would be in that situation.

In any case, this upcoming week will be a big one for markets as the Fed acts and also because we'll start getting our first look at what the future holds for dividends through the end of 2018. In the meantime, here are the market-moving headlines that caught our attention during Week 1 of December 2017.

Monday, 4 December 2017
Tuesday, 5 December 2017
Wednesday, 6 December 2017
Thursday, 7 December 2017
Friday, 8 December 2017

The invaluable Barry Ritholtz provides an overview of the positives and negatives for the U.S. economy and markets in the first full week of December 2017.

Labels: ,

About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

Recent Posts

Stock Charts and News

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button

JavaScript

The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links
Charities We Support
Recommended Reading
Recently Shopped

Seeking Alpha Certified

Archives
Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.