S&P Completes Second Lévy Flight Event of 2019

In closing the week at a value of 2,752.06 on Friday, 31 May 2019, the S&P 500 (Index: SPX) completed its second Lévy flight event of 2019.

Unlike the year’s first Lévy flight event back in January, which was a positive affair, the second Lévy flight for the S&P 500 saw stock prices fall as investors shifted their forward looking focus from the distant future quarter of 2020-Q1 and the more positive expectations associated with it back toward the nearer term quarters of 2019-Q3/Q4. The shift took place as the S&P 500 fell by 124.26 points (4.3%) in the 10 trading days between 16 May 2019 and 30 May 2019. Our alternative futures spaghetti forecast chart captured the shift as it happened:

As Lévy flights go, this new event was a pretty mild one in that it took 10 days for the trajectory of the S&P 500 to traverse the relatively short distance between the alternate trajectories our dividend futures-based model has been projecting for 2020-Q1 and for 2019-Q3/Q4, where we’re not differentiating between these two earlier quarters because their forecast trajectories are nearly identical.

The CME Group’s FedWatch Tool confirms investors have shifted their attention toward the nearer term, as they are now betting that the Fed will cut its Federal Funds Rate in both the third and fourth quarters of 2019.

As for that flow of news that pushed investors to focus on 2019-Q3 and 2019-Q4 and the expectations for stock prices associated with these quarters, here are the headlines that moved stock prices during the fifth and final week of May 2019.

Tuesday, 28 May 2019

• U.S. oil prices up as flooding hits Cushing hub
• Bigger trouble developing in China:

• China dreams on hold: heartland city feels chill of economic slowdown
• Chinese developers’ debt strains ease, but profit slowdown risks grow

Wall St. loses early gains as trade concerns abound

• China to prioritize domestic demand for rare earths: planning official
• China considers U.S. rare earth export curbs: Global Times editor

Wednesday, 29 May 2019

• Oil prices fall as trade war worries outweigh supply disruptions
• Bigger trouble developing in China everywhere:

• German Unemployment Rises as Weaker Economy Starts to Bite
• China May factory activity seen shrinking, trade standoff with U.S. hurts growth: poll
• Modi under pressure to deliver as India’s economy falters
• Mexico central bank further slashes growth forecast
• Bank of Canada holds rates, says economic slowdown likely temporary

Bigger stimulus developing in China:

• After Baoshang rescue, China central bank pours cash into banking system

U.S. stocks fall as trade concerns spark growth fears

• China ready to hit back at U.S. with rare earths: newspapers

Thursday, 30 May 2019

• Oil falls to two-mth lows on small U.S. crude stock draw, trade war worries
• U.S., China firms scramble as new tariffs hurt business

• Shrinking China factory activity, faltering exports inflame economic anxiety

U.S. 30-year mortgage rates drop below 4%: Freddie Mac

Fed unlikely to respond to bond market calls for rate cuts, yet

• Darkening U.S. market outlook yet to faze patient Fed
• Fed’s Quarles says financial stability not main goal of monetary policy
• Fed’s Clarida says he is watching risks to U.S. economy

Wall St. steadies after sell-off, but gains muted

Friday, 31 May 2019

• Trump to impose 5% tariff on Mexican imports over illegal immigration
• Oil falls over 3% on fresh trade worries, posts biggest monthly drop in six months

• U.S. crude output rises 2.1% in March to near record high: EIA
• U.S. drillers cut oil rigs for sixth straight month: Baker Hughes

Bigger trouble developing in China everywhere:

• South Korea May exports fall for sixth month, worse than expected
• Canada first quarter GDP weaker than expected but March shows sign of recovery
• China consumers sour as fruit prices soar on weather, trade war

Bigger stimulus developing in China: China central bank may open taps with cash shortfall looming

Fed’s Williams sees case for aggressive action when steep downturns loom

Wall St. skids, jolted by Trump’s surprise tariff threat on Mexico

Elsewhere, Barry Ritholtz counted up positives and negatives he found among the week’s major economic and market-related news, so if these headlines weren’t enough for you, there are more out there!