Expected Sixth Lévy Flight Of 2022 Arrives For The S&P 500

The final week of May 2022 saw the S&P 500 (SPX) deliver the index' sixth Lévy flight event of the year. In doing that, the index rose 6.6% from where it ended the previous week. The week-over-week increase breaks what had been the worst start for the S&P 500 for any year since 1939.

The move came as investors shifted their forward-looking attention away from 2022-Q2 toward 2022-Q3. This shift has been expected since investors drew in their focus on 2022-Q2 back on 5 May 2022. Here's what the shift in the time horizon of investors looks like on the latest update to the dividend futures-based model's alternative futures chart:

The news that prompted the shift was the 23 May 2022 comments by Atlanta Fed President suggesting the Federal Reserve would pause its planned rate hikes after September 2022 (2022-Q3). Such a pause would be needed should the economy slow faster than the Fed desires as it tries to slow inflation, so Bostic's comments effectively closed the door on the possibility of the Fed announcing a three-quarter point rate hike in 2022-Q2. His comments were then combined with other news during the remainder of the week to redirect investors to reset their forward-looking attention onto 2022-Q3 as the period of interest to focus upon next.

All that was left was a short squeeze to provide the mechanism by which the large upward move in stock prices would take place. Here, a number of unlucky hedge fund managers were happy to fuel what became the S&P 500's sixth Lévy flight event of 2022.

We don't often call our shots, so let's recap the key part of last week's edition of our S&P 500 chaos series, where we did just that:

... the clock is ticking down for how long investors can continue to fix their focus on 2022-Q2, which points to a potential investing opportunity that will exist until their forward-looking attention does shift to another point of time in the future in what will be the stock market's next Lévy flight event.

The lowest risk part of that specific investment opportunity is now gone, but there's still some upside remaining. Provided of course that investor expectations for dividends in future quarters don't erode, which would coincide with the U.S. economy becoming so pinched by inflation and the Fed's attempts to rein it in that it falls into recession.

We did mention that investors were influenced by other news during the week. Here's our summary of the market moving headlines that made up the random onset of news that investors continuously absorb:

Monday, 23 May 2022

• Signs and portents for the U.S. economy:
  • U.S. households felt financially flush going into 2022, Fed says
• Fed minions meet the new boss, same as the old boss; start getting cold feet about rate hikes:
  • Powell was sworn into second four-year term as U.S. Fed chief
  • Fed's Bostic suggests pausing rate hikes in September to assess the impact
• Bigger trouble, stimulus developing in China:
  • China lockdowns, war risk derailing global jobs recovery: ILO
  • China says it will take targeted steps to support the economy
• ECB minions say they're thinking about hiking rates later in 2022:
  • ECB likely to get out of negative rates by September, Lagarde says
• Eurozone minions thinking about stopping doing so much stimulus:
  • Eurozone plans fiscal policy shift from supportive to neutral
• Wall Street rallies on back of big tech, banks

Tuesday, 24 May 2022

• Signs and portents for the U.S. economy:
  • U.S. business activity slows in May, survey shows
  • Record-high U.S. house prices and rising mortgages depress new home sales
• Fed minions starting to get cold feet on rate hikes:
  • Fed policymakers back two more big rate hikes, but then what?
  • As the Fed amps up the inflation fight, one policymaker urges caution
    • In Fed's inflation fight, Bostic wants to avoid 'recklessness'
  • NY Fed sees 3-yr balance sheet rundown to $5.9 trln, slow MBS decline absent sales
• Bigger trouble developing in China, United Kingdom:
  • China's property market woes expected to worsen in 2022 - Reuters poll
  • A sharp slowdown in UK business activity rings recession alarm
• Positive signs in the Eurozone:
  • Eurozone business growth slowed in May but is still resilient -PMI
  • The German economy remains on a growth path for now -PMI
• S&P 500, Nasdaq slide as weak economic data, dire outlooks stoke recession fears
  • Factbox-Wall Street sees gray skies ahead for equities as Fed tightens policy

Wednesday, 25 May 2022

• Signs and portents for the U.S. economy:
  • U.S. core capital goods orders growth slows in April; shipments increase
  • Oil edges higher on tight supply, rising U.S. refining activity
• Fed minions deliver no surprises:
  • Fed minutes may shape the debate over what follows June, and July rate hikes
  • Fed embraces 50-basis-point rate hikes in June, and July to curb 'very high' inflation
    • Most May FOMC participants backed 50 bp hikes in June and July
• Bigger trouble developing everywhere?
  • IIF cuts 2022 global GDP growth estimate in half, flows to EM to drop 42%
  • World Bank's Malpass says the war in Ukraine may trigger a global recession
• Bigger stimulus developing in China:
  • China to further expand infrastructure investment
• Central bank minions taking actions to address inflation:
  • New Zealand raises cash rate 50 bps, signals a lot more to come
  • Japan govt to urge BOJ to meet inflation goal sustainably - draft
  • S.Africa's central bank flags inflation as a major risk to the domestic financial system
  • Swiss National Bank chairman says global monetary policy moving into tightening phase - magazine
• Wall Street climbs after Fed minutes meet expectations

Thursday, 26 May 2022

• Signs and portents for the U.S. economy:
  • U.S. pending home sales dive to a two-year low in April
  • U.S. labor market hot, but declining profits cast a shadow over the economy
• Fed minions see a diminishing role for the U.S. dollar as a global reserve currency; are expected to pause rate hikes after September 2022:
  • Fed's Brainard: We can't take the global status of the U.S. dollar for granted
  • Fed may pause policy tightening in September, BofA says
• Bigger trouble, stimulus developing in China:
  • China property market slumps on developers' debt crisis, weak buyer sentiment
  • COVID-hit Shanghai heads for lockdown exit but China still lost in economic gloom
  • China central bank urges more lending to small firms amid COVID shocks
• BOJ minions provide the first indication they might not continue stimulus indefinitely:
  • Kuroda says BOJ can achieve a smooth exit from the loose money policy
• BOK minions act to hike rates to combat inflation:
  • South Korea steps up inflation fight with back-to-back rate hikes
• Wall Street surges on upbeat retail guidance, easing Fed fears

Friday, 27 May 2022

• Signs and portents for the U.S. economy:
  • The key inflation gauge slowed to a still-high 6.3% over the past year
  • Equities rise, yields fall after data shows U.S. inflation may have peaked
• Signs that Fed minions won't hike rates as much as previously expected shift investor focus to 2022-Q3:
  • Peak interest rates may be lower than expected as growth slowdown looms
  • Cooling U.S. inflation builds a case for a September slowdown in Fed rate hikes
• Bigger trouble developing in China:
  • China's industrial profits slump in April as COVID curbs squeeze firms
  • Japan Apr factory output has seen posting the first fall in 3 months on China lockdown - Reuters poll
  • China punishes local officials for falsifying economic data
  • Shanghai takes baby steps toward ending COVID lockdown
  • China's lending policy could trigger a new debt crisis - Germany's Scholz
• Wall Street rallies to end longest weekly losing streak in decades

The CME Group's FedWatch Tool is now projecting half-point increases in the Federal Funds Rate after the Fed meets in June (2022-Q2) and July (2022-Q3), followed by quarter point increases at six weeks intervals through February 2023, topping out at 2.75%-3.00%.

The Atlanta Fed's GDPNow tool projects real GDP growth of 1.9% in 2022-Q2, down from last week's projection of 2.4%