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

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The final week of May 2022 saw the S&P 500 (Index: SPX) deliver the index’s 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 May 5, 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 were the May 23, 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 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 investing 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:

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-week 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%.

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.