Five Lévy Flights and Counting for the S&P 500 in 2019

2019 is proving to be an active year for fans of Lévy flight events in the stock market! The S&P 500 (Index: SPX) completed its fifth Lévy flight of the year on Friday, 6 September 2019, as investors completed shifting the time horizon of their future-linked attention from 2019-Q4 outward to 2020-Q1.

We think that investors have shifted their forward-looking focus to 2020-Q1 because that is when the CME Group’s FedWatch Tool sees some degree of uncertainty regarding the prospects of a third quarter point rate cut taking place within the upcoming months that are visible within their current time horizon:

Here are the dates we’ve identified for the timing of the S&P 500′s Lévy flight for the year-to-date, along with what our observations of what dividend futures-based model indicates investors were shifting their forward-looking focus from one future quarter to another:

• 07-Jan-2019 to 14-Jan-2019: Inward shift from 2019-Q3 to 2019-Q1, stock prices rise from 2,549.69 to 2,582.61
• 17-May-2019 to 31-May-2019: Inward shift from 2020-Q1 to 2019-Q4, stock prices fall from 2,859.53 to 2,842.98
• 05-Jun-2019 to 10-Jun-2019: Outward shift 2019-Q4 to 2020-Q1, stock prices rise from 2,826.03 to 2,886.98
• 31-Jul-2019 to 05-Aug-2019: Inward shift from 2020-Q1 to 2019-Q4, stock prices fall from 2,980.38 to 2,844.74
• 28-Aug-2019 to 06-Sep-2019: Outward shift from 2019-Q4 to 2020-Q1, stock prices rise from 2,887.94 to 2,978.71

Technically, there was a sixth Lévy flight that occurred near the end of 2019-Q1, as the clock for that quarter ran out and investors shifted their focus toward 2020-Q1. Unlike the other Lévy flight events listed above however, there was very little difference in the expected change in the year-over-year growth rate of dividends projected in 2019-Q1 and in 2020-Q1, which is why stock prices didn’t significantly alter their trajectory as they did during all these other, more noticeably volatile events.

Meanwhile, the random onset of new information is what often prompts investors to shift their forward-looking attention from one of point time to another. Here are the headlines we noted in the first week of September 2019 for their market-moving potential.

Tuesday, 3 September 2019

• Oil slides as U.S., China add more tariffs in trade war
• Bigger trouble developing in China all over:

• Trade war dents Chinese company profits, portfolio inflows
• U.S. manufacturing shrinks, 10-year yield hits three-year low

Central bank minions leaning against future rate cuts, QE:

• ECB’s Villeroy questions merits of restarting QE now
• Fed’s Rosengren sees no pressing need for rate cuts

• Fed’s Rosengren sees elevated risks to ‘benign’ U.S. economic outlook

Wall Street pushed down by weak data, trade worries

• U.S. Treasury yields drop, stocks slide as global slowdown fears loom

Wednesday, 4 September 2019

• Oil prices rise over 4% on positive economic data from China
• China service sector activity rises to three-month high-Caixin PMI

• China to cut bank reserve requirements in ‘timely manner’ to refuel slowing economy

Dovish Fed minions take their turn in the spotlight:

• Fed’s Williams says will act as appropriate to keep economy on track
• Fed’s Kaplan says will assess data right up to September meeting
• Fed’s Kashkari: Rate cuts a ‘poor tool’ to undo trade war harm
• Fed’s Evans says limits on trade, immigration could slow U.S. growth
• U.S. economy growing modestly as trade war dents activity: Fed

Wall Street rises on strong Chinese data, Hong Kong and Brexit news

Thursday, 5 September 2019

• Oil little changed as U.S. crude stockdraw countered by demand fears
• U.S. 30-year mortgage rates hit lowest since October 2016: Freddie Mac
• Bigger trouble developing in China all over:

• China August exports seen up slightly, imports to contract for fourth month: Reuters poll
• Recession risks rise for Germany as industrial orders plunge

U.S., China agree to resume trade talks, markets jump

Stocks rally, Treasury yields rise on easing trade fears

Friday, 6 September 2019

• Oil jumps after Fed says it will act to sustain U.S. growth
• Fed Chair Powell repeats vow to act ‘as appropriate’
• Bigger trouble developing all over:

• Euro zone’s slowing growth confirmed, hit by weak trade
• Exclusive: China sugar industry to lobby government for extension of hefty tariffs on imports – sources
• August jobs report points to slowing economy, Fed rate cut

Bigger stimulus developing in China all over:

• China cuts banks’ reserve ratios, frees up $126 billion for loans as economy slows

• China’s Next Warning

Draghi’s dilemma: Go big, but how big?

As election nears, Singapore may raise spending to ease economic pain

Russian central bank cuts key rate to 7%, says more cuts possible

The S&P 500 inches higher, Treasury yields dip after Powell remarks, jobs report

Barry Ritholtz succinctly summarizes seven positives and seven negatives he found in the week’s economics and market-related news over at the Big Picture.