Special Edition: S&P 500 in Chaos!

On Monday, we announced that we were wrapping up “our S&P 500 Chaos series until 2019, unless market events prompt a special edition.”

Well, market events have prompted this special edition! In falling by more than 2% on Friday, 21 December 2018, the S&P 500 finally completed its fifth Lévy flight event of 2018, as investors fully shifted their forward-looking attention from 2019-Q1 out toward the more distant future quarters of 2019Q3 and 2019Q4, where year over year dividend growth has long been projected to significantly slow.

We’re now about to quote ourselves on the origin of the U.S. stock market’s latest Lévy flight:

The U.S. stock market’s fifth Lévy flight event of 2018 began on 4 December 2018 as investors reacted to the partial inversion of the U.S. Treasury yield curve and to New York Fed President John Williams’ tone-deaf, hawkish comments promising more rate hikes well into 2019 on that date.

That’s relevant today, because once again, New York Fed president John Williams’ tone-deaf and hawkish comments have played a major role in sinking the S&P 500 (Index: SPX) to its lowest point in 2018, while President Trump’s trade advisor Peter Navarro also contributed. Here are three key headlines and links to the stories behind them to provide context:

• Williams soothes markets, says Fed listening and could change policy
• Market not convinced after Fed’s Williams interview, says equity trader
• White House adviser says deal with China difficult without deep policy changes

ZeroHedge put together the following chart to illustrate what happened to stock prices as investors absorbed the specific things they said that drove the day’s considerable volatility in the stock market.

Unless the Fed starts really listening to markets, the legacy of both Fed Chair Powell and New York Fed president Williams may lie in having needlessly pushed the U.S. economy into recession because they chose to keep the Fed’s policies on autopilot.

Let’s tie a bow on the major market-moving news headlines from the final full week of trading in 2018….

Monday, 17 December 2018

• Oil falls, U.S. crude dips below $50 on oversupply fears
• Trump again blasts Fed for “even considering” rate hike
• S&P 500 hits 14-month low on economic jitters ahead of Fed meeting

Tuesday, 18 December 2018

• Oil drops over 5 percent on economic slowdown fears, supply glut
• China embarks on second round of soy buying post Trump-Xi truce
• Trump pressures Fed before meeting, warns against ‘another mistake’
• S&P flat as government shutdown threat, Fed decision loom

Wednesday, 19 December 2018

• Oil rebounds from rout on signs of strong product demand
• China’s builders are hurting: Beijing may feel the pain
• Fed raises interest rates, signals more hikes ahead
• Wall St. tumbles as investors fret over Fed policy update

Thursday, 20 December 2018

• Equities slide as Fed heightens worry over growth slowdown
• Treasury chief calls market reaction to Fed ‘overblown’
• Wall St. slides on Fed plans; Nasdaq flirts with bear territory

Friday, 21 December 2018

• U.S. shale producers hit the brakes on 2019 spending
• China denies rumors about not cutting taxes and fees
• Williams soothes markets, says Fed listening and could change policy
• Market not convinced after Fed’s Williams interview, says equity trader
• White House adviser says deal with China difficult without deep policy changes
• Nasdaq confirms bear market; economic worries sink Wall Street

Elsewhere, Barry Ritholtz dividend the week’s major economics and markets news into six positives and seven negatives.

That’s really it for our S&P 500 chaos series until 2019 – we’ll post one last time in 2018 with the Biggest Math Story of the year. Enjoy the holidays, and we’ll be back to catch up the latest major market news up in January!