With S&P 500 close to record high, money markets may be signalling troubles ahead

The S&P 500 fell 0.5 percent last week.

Despite the decline, the S&P 500 remains just 1.2 percent below its record high set in late July.

“It’s good that we’re challenging the records, but I don’t know if we have enough momentum to stay around these levels,” said JJ Kinahan, chief market strategist at TD Ameritrade.

Somewhat more confident is Edward Yardeni, president of Yardeni Research.

“I’ve got 3,500 as my target for next year,” he told CNBC on Friday. “We’ll get there on higher earnings with maybe somewhat higher valuation as the perception continues to be that interest rates aren’t going up much, if at all.”

However, John Tobey at Forbes warned that developments in money markets last week signalled possible troubles ahead.

“… something just went bump in the other room, where bond and money managers play,” he wrote. “In this case, that undesirable bump was the repo market being unable to function within the Fed’s desired interest rate range.”

Tobey said the real concern is the unexpected declines in Fed deposits, which required the Fed to “throw large amounts of money into the system” from Tuesday onward.

Tobey suggested that it may not be a good scenario “when the Fed begins throwing money into the system in the hopes of solving whatever the problem is and keeping those guys in the other room from running for the exits”.