The S&P 500's Increasing Volatile Roller Coaster Ride

You can't say you weren't warned. The erosion of expected future dividends through the projected future of 2020 has begun contributing to the increasing volatile roller coaster ride S&P 500 investors have found themselves on.

Although we've been attaching daily updates of the market's actions to our regular weekly S&P 500 chaos series' posts, we thought it might be a good time to fully review the S&P 500's latest Lévy flight event, which took place between 24 February and 9 March 2020, as investors fully shifted their forward-looking attention from 2020-Q4 inward to 2020-Q2. The following animation shows all the market's action over the last three weeks from Friday, 21 February 2020 through Friday, 13 March 2020.

 

The Lévy flight event is really associated with changes in the expected timing of rate cuts by the Federal Reserve, where investors went from expecting two quarter point rate cuts in 2020, one in 2020-Q3 and another in 2020-Q4, to where as of last Friday, they are expecting the Fed to slash interest rates on or by the conclusion of the Federal Open Market Committee's 18 March 2020 meeting to the zero bound, which is to say to a target range between 0% and 0.25%.

In between, there was an emergency rate cut of a half point on Tuesday, 3 March 2020, and as of yesterday, Sunday, 15 March 2020, the Fed has executed another emergency rate cut, this time to the zero bound.

Since that expectation had locked in as of Wednesday, 11 March 2020, which brings us to what happened on Thursday, 12 March 2020, when the bottom seemed to drop out of the S&P 500. This is where the erosion of future expected dividends caught up to the level of the S&P 500, causing it to prematurely plunge by nearly 10%, which is to say it moved to the level it descended earlier than the dividend futures-based model anticipated.

We think that's a contributing factor to why the S&P 500 rebounded so strongly on Friday, 13 March 2020 when President Trump announced the government would be turning to the private sector of the U.S. economy for assistance in combating the coronavirus pandemic.

And that's pretty much what happened during the crazy week that was for the S&P 500. Since the Fed has already acted to slash the Federal Funds Rate to the zero bound range, we'll dispense with updating our snapshots of the CME Group's FedWatch tool's indicated probabilities of expected changes in that interest rate, and instead animate how investor expectations for future S&P 500 dividends has changed over the last three weeks, matching the period covered in our animation of the S&P 500's roller coaster ride.

 

We'll also provide a more complete listing of previous week's market-moving news headlines than what we have in our daily updates:

Monday, 9 March 2020

• Oil prices plunge, hit by erupting Saudi-Russia oil price war
  • Russia vs Saudi: How much pain can they take in oil price war?
• Bigger stimulus developing all over:
  • France, Italy seek fiscal shock therapy to combat coronavirus
  • Kuroda says BOJ will take appropriate action with eye on markets, virus impact
    • Japan's economy shrinks faster than first estimated on growing virus, recession risks
  • Australia plans $6.6 billion stimulus to combat virus impact: report
  • New York Fed raises repo limits as demand for loans jumps
  • Germany says to help companies hit by coronavirus
  • EU Commission looks at doing whatever it takes to help economy against coronavirus
  • IMF says governments should offer cash transfers, tax relief to ease coronavirus effects
  • New York Fed Repo Totals $112.93 Billion
  • NYFed Massively Ramps Up Repo Facility Liquidity Bailout
• Barriers to bigger stimulus in Europe:
  • Unclear wither coronavirus has longer-term economic impact - Germany's Scholz
  • Swiss government to virus-hit companies: don't expect helicopter money
• Coronavirus, then oil collapse erase $5 trillion from U.S. stocks
  • U.S. bank shares slammed as virus, plunging oil amp up economic fears

Tuesday, 10 March 2020

• Oil jumps 8% on stimulus hopes, spending cuts by U.S. producers
  • Saudi Arabia, Russia raise stakes in oil production standoff
• U.S. firms rush to batten down hatches from Russia-Saudi oil price war, coronavirus impact:
  • Big Oil faces 'survival mode' payout strategies as prices dive
    • North American oil companies slash spending to cope with $30/bbl crude
  • United Airlines shores up liquidity, cuts costs to weather coronavirus
• Bigger stimulus developing in the U.S., Japan, Australia:
  • Trump presses 'pathetic' Fed to cut rates more aggressively
  • Trump's coronavirus stimulus is still evolving. Here's what it should include, experts say
  • Japan announces $4 billion coronavirus package, not yet eyeing extra budget
    • Japan PM says won't hesitate to do what's needed in coronavirus fight
    • Japan's Abe pressures BOJ to ease ahead of next week's rate review
    • BOJ may pledge to ramp up ETF buying next week, sources say
  • Australian PM says stimulus package will be announced soon
• Bigger trouble developing in the Eurozone:
  • Euro zone economy slowed in fourth-quarter, imports jump
  • Deutsche Bank economist expects German economy to shrink in 2020
  • Coronavirus to further dent Europe Inc's earnings in 2020
• ECB, EU minions continue spectating from sidelines:
  • ECB's Lagarde to join EU leader call on coronavirus on Tuesday
  • EU pledges fund to tackle virus crisis, but no fresh money
• Wall Street bounces back as stimulus hopes soothe recession fears

Wednesday, 11 March 2020

• Oil price war impacts as Russia, Saudi Arabia dig in:
  • Oil slumps as stock markets sink, while Saudi, UAE plan to boost capacity
  • U.S. crude output growth to slow, oil prices to slump
  • Exclusive: Russia to OPEC: deeper oil cuts won't work
  • Saudi Arabia asked state agencies to implement big budget cuts: sources
  • Russia vs Saudi: How much pain can they take in oil price war?
  • Marathon Oil cuts drilling activity, spending
• Bigger trouble developing as China's coronavirus epidemic becomes pandemic:
  • WHO calls coronavirus a pandemic as Britain, Italy shore up defenses
  • China's coronavirus-induced supply chain woes fan concerns of possible drug shortages
  • China says downward pressure on trade, global economy rising due to coronavirus
  • China's building work stalls in February, as virus keeps workers indoors
  • Italy in coronavirus lockdown as deaths soar and economy fades
• Bigger stimulus developing in the U.S.
  • Washington considers actions to bolster U.S. economy as coronavirus cases mount
  • Pence says stimulus proposal includes payroll tax relief
  • U.S. eyes direct deposit to workers, tax delays, airline aid to counteract coronavirus
  • Bankers meet with Trump, say prepared to help economy
  • House Democrats to announce coronavirus economic relief package: aide
• EU, ECB minions may be forced to finally step off the sidelines:
  • Euro zone inflation gauge falls below 0.9% for first time, day before ECB meets
  • ECB urges EU governments to spend in fight against coronavirus: sources
• Meanwhile, what are the Fed's minions up to these days?
  • New York Fed increases repo support to keep markets running smoothly
  • Fed faces headache, taps epidemiologists in hunt for policy clues
• S&P 500 falls 20% from record high, crossing bear market threshold
  • U.S. Treasury yields fall as stocks sink on stimulus uncertainty
  • Mnuchin says no need for intervention in markets due to coronavirus

Thursday, 12 March 2020

• Bigger trouble, stimulus developing from coronavirus pandemic crisis:
  • Text: What President Donald Trump told Americans about coronavirus
    • Trump suspends all travel from Europe to the United States to fight coronavirus
    • Trump administration eyes 10% middle-class tax cut proposal
    • Trump says payroll tax relief could run to year-end or be made permanent: source
  • Fed provides massive liquidity injection to calm markets amid signs of stress
    • New York Fed increases repo support to keep markets running smoothly
    • Explainer: Fed may go into its crisis tool kit soon. What's in it?
• Fecklessness of EU, ECB minions comes home to roost:
  • Instant View: ECB holds rates but ramps up stimulus to counter virus impact
    • ECB ramps up stimulus for virus-hit Europe but keeps some powder dry
    • ECB did not even discuss a rate cut on Thursday: sources
    • Passing the buck: ECB's Lagarde calls for ambitious fiscal response to coronavirus
      • Lagarde Warns European Economy Faces '2008-Style Crisis' Without 'Coordinated' Government Action
  • France urges 'massive' EU fiscal stimulus to amplify ECB action
  • World stocks plunge into bear market on U.S. travel curbs, ECB move
  • European stocks record worst daily loss on record
• Oil falls 7% after Trump surprises with travel curbs
  • Saudi Arabia floods globe to squeeze Russia's share of oil market: sources
• Dow plunges 10% amid coronavirus fears for its worst day since the 1987 market crash
  • Need more gloom? Nobody wraps up a down day of trading better than ZeroHedge: Black Thursday: "One Giant Margin Call" Drags Dow Down 10%

Friday, 13 March 2020

• Trump declares U.S. emergency as coronavirus chaos spreads
  • Explainer: Here's what Trump's declaration of coronavirus emergency means
• Bigger stimulus developing in the U.S.:
  • Fed starts bond purchases under ramped up liquidity program
  • Central banks flash the cash as market panic drives liquidity squeeze
  • Exclusive: U.S. Fed, banks discuss possible leniency on liquidity threshold to aid lending - sources
  • Fed's Rosengren says 'disruptive' steps needed to 'dent' coronavirus
• Good news, bigger stimulus developing in China:
  • China's coronavirus epicenter reports just five cases; Beijing tombsweepers urged to stay back
  • Over 95% of larger Chinese firms outside Hubei resume work: official
  • China pumps $79 billion into economy with bank cash reserve cut
• ECB chief minion shoots self in foot, hits Italy:
  • Italy furious at ECB's Lagarde 'not here to close spreads' comment
    • Flashback from 2 July 2019: Lagarde to rely on political skill to overcome shortcomings at ECB
  • ECB's Lagarde rows back from comment that sent Italian yields higher
  • ECB on back foot as Lagarde bungles virus message
  • Why an off-the-cuff Lagarde comment spooked euro bond investors so much
  • Lagarde is the best person for ECB job - de Cos
• Bigger trouble, confusion developing in Eurozone:
  • EU, euro zone very likely in recession this year due to virus, Commission says
  • EU to redirect funds to virus-hit parts of economy
  • Merkel says coronavirus situation more extraordinary than banking crisis
    • Germany to provide aid to artists, event firms hit by coronavirus
    • German bankruptcies set to rise for first time since 2009 - administrator
    • Germany would like to localize supply chains, nationalization possible, minister says
    • Germany: No need to take stakes in key companies due to coronavirus at moment
• Crude posts worst week in a decade, hit by coronavirus and price war eruption
  • Saudi Arabia floods markets with $25 oil as Russia fight escalates
  • Russia sees no grounds to resume talks with OPEC+ - Interfax cites energy minister
• Stocks stage furious rally late after national emergency declared

Over at the Big Picture, Barry Ritholtz listed the positives and negatives he found in the past week's economics and market-related news.

While the S&P 500's volatility remains elevated, we'll attach daily updates of the market's main actions after the end of each trading day until it somewhat settles down. If you're accessing this article on a site the republishes our RSS news feed, you can get the latest updates by clicking through to the original article on our site. The best time to check will be late in the evenings, but since we don't follow a set schedule in posting updates, you might more reliably find our updates early the next morning.