Unexpectedly Intriguing!
25 April 2022

The S&P 500 (Index: SPX) has fallen off the edge we described it was on, entering into 2022's third Lévy flight event.

What's happening with stock prices now is the "short and brutal path to sobriety" alternative we explained would come about if "investors have a reason to refocus a significant portion of their attention on 2022-Q2" in setting current day stock prices in our discussion demystifying the recent moves of the S&P 500. You cannot say you were not warned what would happen if that occurred, though we doubt anyone could predict the specific circumstances that succeeded in pushing the S&P 500 off the edge.

As for what triggered the new Lévy flight by prompting investors to shift their forward looking attention from 2022-Q3 inward toward what they expected will happen during 2022-Q2, we can thank ZeroHedge's Tyler Durden for providing a succinct summary:

Ultra-hawkish FedSpeak (from them all) sent rate-hike expectations this week (with 50bps fully priced-in for May, and a 35% chance of a 75bps hike in June now)...

Here's how that change looks on the alternative futures spaghetti forecast chart where, for the first time ever, we've added a second, 'redder' forecast range to track where stock prices are most likely to head as investors focus upon 2022-Q2.

Alternative Futures - S&P 500 - 2022Q2 - Standard Model (m=-2.5 from 16 June 2021) - Snapshot on 22 Apr 2022

The key triggering event involving Fed Chair Jerome Powell's comments took place on Thursday, 21 April 2022, which went on to build downward momentum for investor expectations on Friday, 22 April 2022. Read all about it by following the appropriate links in our recap of the week's market moving headlines:

Monday, 18 April 2022
Tuesday, 19 April 2022
Wednesday, 20 April 2022
Thursday, 21 April 2022
Friday, 22 April 2022

The CME Group's FedWatch Tool projects the Fed will hike rates by a half point in May (2022-Q2) and by another three-quarter point hike in June (2022-Q2). That would be followed by a half point rate hike in July (2022-Q3) and a quarter point rate hike in September (2022-Q3). 2022-Q4 would see a half point rate hike in November, and a quarter point rate hike in December 2022.

Looking at the Atlanta Fed's GDPNow tool, we find it anticipates the first quarter of 2022 saw 1.3% of real GDP growth. The BEA's first estimate of 2022-Q1 GDP will be reported later this week, so the GDPNow tool will soon refocus on 2022-Q2's GDP growth rate.

Later this week, we'll update our ongoing series on the day-to-day volatility of S&P 500 stock prices. Because it may become highly relevant in the near future.

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