Political  Calculations
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Beginning after the market's close of business on 15 November 2012, large numbers of U.S. companies began announcing that they would pay out extra or special dividends before the end of the year.

That activity focused investors on the fourth quarter of 2012 for setting stock prices, which began rising along with investor expectations for the dividends that would be paid out before the end of the year.

That activity continued up through 20 December 2012, which marked the end of the dividend futures contracts for the fourth quarter of 2012.

After that point, investors shifted their attention to a more distant point in the future - to the second quarter of 2013. Stock prices have continued to rise in the rally because they started the month at a level below where the expected change in dividends per share for 2012-Q2 would place them. Today, investors remain focuses on 2013-Q2 in setting stock prices, which we observe as the change in the growth rate of stock prices converging with the expected change in the growth rate of dividends per share for that future quarter.

Our animated chart below shows this transition in the period from 20 December 2012 through the futures for 21 January 2013, along with the shift in focus of investors from 2012-Q4 to 2013-Q2, which you can see as the sudden 5-month leftward shift of the green/red trailing year future dividends per share acceleration data.

Animated Accelerations of S&P 500 Average Monthly Index Value and Trailing Year Dividends per Share, for Futures Through 20 December 2012 through 20 January 2013

And that's why the rally that began back on 15 November 2012 has continued to run. Investors had better hope that the Fed's latest QE efforts start affecting asset prices soon, because the alternative future points in time for where investors might next choose to focus their attention in setting stock prices aren't as pretty.

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Political Calculations

Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.

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