Second Lévy Flight Event Boosts S&P 500 After Election

Time for a flashback! On 28 October 2020, we provided the following update to that week's entry in our ongoing S&P 500 chaos series:

The S&P 500 dropped 3.5% today, with the die cast long before the market opened thanks to France's and Germany's decision to impose new nationwide COVID lockdowns, which will negatively impact the European and global economy. From our perspective, that news appears to have triggered investors to suddenly shift their forward-looking focus from 2020-Q4 toward 2021-Q1 in a new Lévy flight. The change comes just as we're reaching the end of the redzone forecast range:

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This new shift is consistent with our nearly one month old observation that investors "may switch their focus back and forth between 2020-Q4 and 2021-Q1 severval times before the end of the 2020 calendar year". It's important to note that while we can anticipate the effect and the relative magnitude of the shifts when they do occur, they are not predictable because the timing of these shifts is essentially random. That is because they are prompted by the random onset of new market-moving information, like today's before-the-bell news of the Eurozone's new coronavirus lockdowns. At the same time, what makes the content of the news that drives these events so important is how it affects the time horizon for investors, or rather, how far forward in time they are looking when making their current day investing decisions.

What events might refocus investors back upon 2020-Q4? That answer may come sooner than you might think, but once again, it all hinges on the random onset of new information.

The event that refocused investors back on 2020-Q4 was the U.S. election. On 5 November 2020, we added the following update to our previous entry in this series:

It's taken just two days for investors to fully shift their focus from 2021-Q1 back into 2020-Q4 in the aftermath of the 3 November 2020 election, thanks largely to the failure of the Democratic party to deliver a 'blue wave' election result that would ensure their promised tax hikes on corporate and investor income. Here's the updated alternative futures chart showing the shift in the level of the S&P 500 corresponding to that change in the future time horizon for investors:

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With the second Lévy flight of the last two weeks now complete, investors didn't have much reason to shift any part of their attention to any other point of time in the future, nor was there any meaningful change in the expectations for future dividends. So the S&500's post-election rally stalled out on Friday, 6 November 2020. Here's one last update to the alternative futures chart to close out the week that was.

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Other than that, the growing spread of COVID-19 infections was truly the biggest story in the world in the last week. Here are the headlines we plucked out of the week's newstream for their market moving potential.