S&P Midcap E-Mini Jun '23 (EWM23)

Description

A stock index simply represents a basket of underlying stocks. Indexes can be either price-weighted or capitalization-weighted. In a price-weighted index, such as the Dow Jones Industrial Average, the individual stock prices are added up and then divided by a divisor, meaning that stocks with higher prices have a higher weighting in the index value. In a capitalization-weighted index, such as the Standard and Poor's 500 index, the weighting of each stock corresponds to the size of the company as determined by its capitalization (i.e., the total dollar value of its stock). Stock indexes cover a variety of different sectors. For example, the Dow Jones Industrial Average contains 30 blue-chip stocks representing the industrial sector. The S&P 500 index includes 500 of the largest blue-chip U.S. companies. The NYSE index includes all the stocks traded at the New York Stock Exchange. The Nasdaq 100 includes the largest 100 companies traded on the Nasdaq Exchange. The most popular U.S. stock index futures contract is the E-mini S&P 500 futures contract, which is traded at the CME Group.

Prices - The S&P 500 index (Barchart.com symbol $SPX) posted its low for 2023 of 4682.11 in January on concerns that a strong labor market and sticky inflation pressures would force the Federal Reserve to keep interest rates "higher for longer." The US January unemployment rate fell to a 54-year low of 3.4%, and January CPI rose +6.4% yr/yr, well above the Fed's 2% target. However, stocks trended higher for the remainder of the year as expectations for easier Fed policy bolstered the outlook for an economic soft landing. As a result, the S&P 500 finished 2023 up by +24% yr/yr at 4769.83.

Stocks found support from the February FOMC meeting, even after the FOMC raised the federal funds target range by +25 basis points to 4.50%-4.75%, because Fed Chair Powell said the "disinflation process has started," suggesting the Fed's aggressive tightening cycle was nearing an end.

Stocks came under brief pressure in March on US banking concerns after the collapse of Silicon Valley Bank, the largest US banking failure since the 2008 financial crisis. However, the crisis was short-lived because contagion was limited to a few regional banks with large commercial property market exposure and because the US government stepped in to provide broader deposit insurance coverage to protect bank customers.

Stocks continued higher into July as the FOMC paused raising interest rates at the June policy meeting. Also, the US economy remained strong and inflation pressures eased. Specifically, May nonfarm payrolls showed a large increase of +303,000, and the June CPI eased to a 3-year low of +3.0% yr/yr.

Stocks ratcheted lower into late October because of concern that US economic strength would prompt the Fed to keep interest rates higher for longer. The FOMC, at its September meeting, indicated it might tighten monetary policy further and scaled back its estimates for interest rate cuts in 2024. Bond yields soared and undercut stocks as the 10-year T-note yield posted a 16-year high of 5.02% in October.

However, stock prices stabilized in early November and continued higher into year-end as the US economy remained resilient, boosting corporate earnings. Q3 GDP expanded at a 4.9% (q/q annualized) pace, the strongest in 2 years.

Stocks rallied late in the year when the FOMC, at its December meeting, signaled an end to its rate hike cycle and pivoted toward an easing of policy when it projected 75 basis points of interest rate cuts for 2024.

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