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.

Alternative Futures - S&P 500 - 2019Q3 - Standard Model - Snapshot on 7 Sep 2019

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:

CME Group FedWatch Tool Probabilities of Federal Funds Rate Changing at Future FOMC Meeting Dates, Snapshot on 06 September 2019

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
Wednesday, 4 September 2019
Thursday, 5 September 2019
Friday, 6 September 2019

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.