1 Car, 2 Drivers For The S&P 500

Summary

• Last week showed the two drivers the S&P 500 now has.
• One is the anticipation the Fed will continue providing support.
• Second is the disappointing stream of news taking over the market.

The final week of April 2020 showed the two drivers for the S&P 500 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.

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 forecast 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

• Global oil prices collapse, potential risk from rising interest rates:
  • U.S. oil plunges 25%, Brent falls below $20 a barrel
  • Taper Tantrum II? Fed's slowing Treasury purchases may boost bond yields
  • U.S. economy faces historic shock, with 16% joblessness possible, Trump adviser says
• Bigger stimulus taking shape:
  • EU to offer banks capital relief to help coronavirus-hit firms: sources
  • https://www.reuters.com/article/us-health-coronavirus-usa-loans/extra-2-billion-available-for-u-s-coronavirus-relief-loans-sba-idUSKCN2292MY
  • Nearly 7% of U.S. mortgage borrowers receiving payment relief, industry survey shows
• Hopeful signs:
  • Europe restarts car factories amid uncertain demand
• U.S. stocks advance as some states reopen for business

Tuesday, 28 April 2020

• Life in the coronavirus-stricken U.S. economy:
  • Oil prices tumble as world's storage tanks fill up amid demand shock
    • Brent settles higher on easing lockdowns, U.S. crude falls amid storage shortage
  • Toilet paper trophy hunters on a roll as U.S. shortages start easing
  • Trump will order U.S. meat processing plants to stay open amid coronavirus fears
• Fed minions making plans:
  • Fed signals annual central bankers' meeting will not be business as usual
  • Fed seen making small changes to keep fed funds above zero
• Bigger stimulus developing in the Eurozone:
  • Euro zone banks to ease business loan terms amid pandemic: ECB
• Wall Street down on flight from techs; move to value limits loss on Dow, S&P 500

Wednesday, 29 April 2020

• Inside the U.S. economy:
  • Coronavirus savages U.S. economy in first quarter; bigger hit still to come
    • White House official warns of negative shocks before rebound later in 2020
    • Boeing to shrink workforce, raise cash as coronavirus slams jet industry
  • Oil posts double-digit gains after U.S. crude storage build slows
• Bigger stimulus being fleshed out for U.S. as Fed delivers dovish promise:
  • Fed leaves rates near zero, vows to use 'full range' of tools to help economy
    • Federal Reserve issues FOMC statement
    • Fed keeps rates steady, vows to maintain coronavirus measures
  • U.S. Treasury chief says reserving capital to add to Fed coronavirus lending programs
  • U.S. insurers want taxpayers to back pandemic coverage for businesses
  • McConnell says business protection a condition for next COVID bill
• Shares jump on coronavirus treatment hopes, oil soars

Thursday, 30 April 2020

• U.S. economy slides as expected; oil rises on presidential support, price rebound:
  • Millions of Americans continue to seek jobless benefits; consumer spending slumps
  • Oil prices surge on last day of roller-coaster month
    • Special Report: Trump told Saudis: Cut oil supply or lose U.S. military support - sources
• Bigger trouble developing in China, Russia, Japan, Eurozone:
  • Chinese factories struggle to fire in April as slump in export orders deepens
  • Russian manufacturing activity plunges to record low in April: PMI
  • Japan's factory output, retail sales slump as virus hits economy
  • Euro zone economy shrinks at record rate, worse to come
• Wait-and-see before bigger stimulus developing in U.S.?
  • Fourth stimulus bill may not be needed if states bounce back: White House official
  • U.S.' Pelosi mulls $1 trillion for cities, states in next coronavirus relief round
  • About half of U.S. states easing coronavirus restrictions as jobless numbers grow
• Fed downgrades recovery forecast while upping relief program support:
  • 'W-shaped' recovery may be too optimistic, Fed's Powell suggests
  • Fed expands 'Main Street' program to firms with up to 15,000 workers
• ECB minions do little, try to return to sidelines:
  • ECB makes credit cheaper for banks, keeps powder dry in virus battle
  • ECB prepares for more stimulus, hints at junk bond buys
  • Lagarde sees ECB in crisis mode until next year
  • Text: Statement from the ECB following policy meeting
  • European shares fall from seven-week peak on ECB, earnings upset
• Profit taking: Wall St. caps best month in decades with broad sell-off

Friday, 1 May 2020

• Impact of coronavirus pandemic ripples through U.S. economy:
  • Trump threatens new tariffs on China in retaliation for coronavirus
  • Exxon, Chevron slam brakes on shale as oil demand tumbles
  • COVID-19 general insurance losses seen higher than 9/11 claims: broker
  • Factbox: Insurers return part of auto premiums as coronavirus cuts driving
• Bigger trouble developing in Japan:
  • Japan April auto sales slump to nine-year low as coronavirus saps demand
  • Deflation fears creep back in Japan as pandemic hits prices
• Fed officials worry about lasting economic scars from crisis
  • For Fed Chair Powell, March was pure madness as coronavirus response intensified
  • U.S. rates to stay low, Fed will need to do more, Kaplan says
• What might be in the next big stimulus:
  • U.S. Republicans push for coronavirus lawsuit immunity for business
  • Trump says will address national debt if re-elected: interview
  • Kudlow says White House to focus on future growth incentives
• Wall Street tumbles as renewed tariff threat adds to uncertainties

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.

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.