Prospects Of Four Future Rate Cuts Lift S&P 500 To New Heights

Posted: Jun 24, 2019 9:51 AM

The S&P 500 (Index: SPX) reached new heights in the third week of June 2019 as the U.S. Federal Reserve's signaled it would soon begin slashing its Federal Funds Rate, lifted by the prospects the Fed may implement as many as four rate cuts happening between between the present and the end of the first quarter of 2020.

Although the odds of a Fed rate cut in 2020-Q1 dropped below 50% again on Friday, 21 June 2019, we think the potential for a fourth rate cut in March 2020 will continue to fix investors' attention on this distant future quarter, unless and until they might have a more compelling reason to reset their focus upon a different point of time in the future.

With that assumption in place, we've added a redzone forecast range to our alternative futures spaghetti forecast chart, where we would anticipate the S&P 500 to fall while investors set their focus on 2020-Q1 during the next several weeks while the echo of past volatility in stock prices affects the accuracy of our dividend futures-based model in projecting future stock prices.

And because we're so close to the end of 2019-Q2, which is already over where the quarter's dividend futures contracts are concerned, we'll take advantage of the opportunity to project the potential futures for the S&P 500 through the end 2019-Q3:

On the whole, the S&P 500 behaved predictably during the third week of June 2019. A big reason why that was the case was the flow of news during the week, where we flagged the following headlines as particularly newsworthy for their market-moving potential.

Monday, 17 June 2019
Tuesday, 18 June 2019
Wednesday, 19 June 2019
Thursday, 20 June 2019
Friday, 21 June 2019

At the Big Picture, Barry Ritholtz identified 6 positives and 6 negatives in his review of the week's major economic and market-related news.

The S&P 500 will enter 2019-Q3 relatively near the ceiling for how high it can go with the current expectations for future dividends, which puts it into something of a danger zone. While it has some room to move up from its current record level, events that might cause investors to refocus on the nearer term future would likely coincide with sharp declines in stock prices as 2019-Q3 offers investors heightened risks.