Nvidia (NASDAQ: NVDA) became the world's first publicly-traded company to clock a $4 trillion market cap during intraday trading on 9 July 2025.

That's a big deal because NVDA recently vaulted past two other megacaps to claim the title. In recent years, both Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) jockeyed for the title of being the world's biggest publicly-traded company, only to have Nvidia blow past them in just the last month.

The rise of NVDA is an ongoing major story, not just in the current headlines, but also in the history of stocks. Here's how CNBC reported today's milestone achievement:

Nvidia stock rose on Wednesday lifting the company’s market cap briefly past $4 trillion for the first time as investors scooped up shares of the tech giant that’s building the bulk of the hardware for the generative artificial intelligence boom.

However, Nvidia stock ended finishing the day only up 1.8%, giving the company a market cap of $3.97 trillion.

Nvidia is the world’s most valuable company, surpassing Microsoft and Apple, both of which hit the $3 trillion mark before Nvidia. Microsoft is also one of Nvidia’s biggest and most important customers. The chipmaker is the first company to ever achieve this market value during trading.

What makes this accomplishment more amazing is that NVDA's market cap has been remarkably volatile in recent months, especially after 20 February 2025, when the company behind China's DeepSeek artificial intelligence system announced they would make their code open source. That hurt NVDA's market valuation because DeepSeek's AI-code doesn't need to run on Nvidia's powerful AI-chips.

NVDA's market cap went from $3.4 trillion on 20 February 2025 down to a low of $2.6 trillion on 10 March 2025. The stock recovered a bit after that, rising back to $2.96 trillion on 24 March 2025. But then it plunged again in the reaction to President Trump's "Liberation Day" tariff announcement on 2 April 2025. By 4 April 2025, NVDA's valuation totaled $2.30 trillion.

But then the company's valuation recovered, adding more than $1.7 trillion during the last three months, which has put in on the doorstep of a $4 trillion market capitalization.

We've updated the interactive chart we posted a year earlier to include the new $4 trillion benchmark.

The chart doesn't fully communicate the volatility of NVDA's market cap because it is based on snapshots of its total valuation as a percentage of the S&P 500's total market capitalization taken at roughly mid-year over the past 10 years, skipping over almost all of the volatility. As for where it stands today, the latest snapshot indicates NVDA's stock alone accounts for 7.07% of the total valuation of the S&P 500 index.

That in itself is remarkable because that's less that the 7.25% we estimated a year ago. What's happened since then is that the rest of the stocks that make up the index have increased their relative share of the total valuation of the index, while previous market cap champions AAPL and MSFT have lost some of theirs.

That's an underappreciated story in the U.S. stock market, which we'll revisit in the months ahead.

Disclaimer: Aside from long positions in funds that track the S&P 500 index, we don't hold any position of any kind in either NVDA, AAPL, or MSFT. We simply find these megacap stocks to be interesting because of their influence on the index.

Image credit: Microsoft Bing Image Creator. Prompt: "An artificial intelligence computer chip with the letters NVDA in the middle." We originally featured this image on 26 February 2024.

June 2025 was another net-negative month for the dividend paying stocks of the U.S. stock market.

That's based on the dividend metadata compiled for the entire market by Standard & Poor. When we add up all the favorable year-over-year dividend actions like dividend increases, extra dividends and resumptions during the month and then subtract all the unfavorable actions, like announced dividend decreases, the resulting single number that summarizes all the dividend changes of June 2025 is -4.

That's an improvement over the much more negative result we reported for May 2025. While still negative, the underlying data points to a mixed picture for U.S. dividend paying firms. The good news is that fewer firms announced reduced dividends than last month, which was tempered by the bad news of fewer firms announcing dividend rises.

All of June 2024's favorable and unfavorable dividend actions are tallied in the following table, which shows how much they changed since June 2024 (year-over-year) and since May 2025 (month-over-month).

The following chart tracks the monthly counts of dividend increases and decreases from January 2004 through June 2025:

The chart reveals the number of firms announcing decreased dividends in June 2025 remains well below the threshold that indicates recessionary conditions are present within the U.S. economy. However, the more-than-two-year downtrend for dividend increases shown on the chart suggests an ongoing tightening operating environment for firms, which are finding it harder to grow their dividends and, by extension, their businesses.

The next chart shows how the dividend increases and decreases reported during the just-completed 2025-Q2 compares with each of the preceding four quarters:

This chart emphasizes the year-over-year reduction in the number of dividend increases between 2024-Q2 and 2025-Q2.

References

Standard and Poor. S&P Market Attributes Web File. [Excel Spreadsheet]. Accessed 1 July 2025.

Image Credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a Wall Street bull and bear playing a casino game in which a spinning wheel with two halves, one named 'NET POSITIVE' and the other named 'NET NEGATIVE' has settled on the 'NET NEGATIVE' side", which we followed up with a second prompt: "Add a sign labeled 'DIVIDEND METADATA' above the wheel. Also make the picture more colorful."

How does the size of the S&P 500 (Index: SPX) compare with the biggest publicly traded companies in the world?

We've answered the question visually with the following image that combines two of Finviz' treemaps: one for the S&P 500 and the other for the World (minus U.S. stocks):

In this visualization, the S&P 500 is presented 'full size', while the World has been scaled 70% in the horizontal direction and 60% in the vertical from Finviz' full-size images. That scaling is roughly based on the relative areas of Taiwan Semiconductor Manufacturing (Taiwan: TSM), which is the largest company in the world outside of the United States, and Broadcom (Nasdaq: AVGO) as Finviz presented in their combined treemap of the world's largest stocks according to their market capitalization. According to that visualization, TSM is about 8-9% bigger in area than AVGO, which we've replicated in our scaled version of Finviz' World map.

It's an interesting way to compare the size of the biggest U.S. firms with the entire stock markets of other regions. It's one thing to know that stocks like Apple (Nasdaq: AAPL) and Microsoft (Nasdaq: MSFT) each have a bigger market cap than the entire Canadian stock market, for example, but it's quite another to see that comparison as we've shown it.

Dividend paying stocks turned in a mixed performance during April 2025. The good news is that the number of stocks announcing unfavorable dividend actions dropped to its lowest level since June 2024. The bad news is the long-running trend of fewer companies announcing favorable dividend changes continued, pulling the month into the net negative column.

In the end, the single number that best summarizes the month is -20. This figure represents the net amount by which a reduced number of companies announcing favorable actions like dividend increases or paying extra (or special) dividend payments to their shareholders offset the reduction in the number of firms that either cut or suspended their dividends when compared against their levels in April 2024.

All the month's favorable and unfavorable dividend actions are tallied in the following table, which shows how much they changed both since April 2024 (year-over-year) and since March 2025 (month-over-month).

The following chart visualizes the monthly counts of dividend increases and decreases from January 2004 through April 2025.

April 2025 is the third consecutive month in which the U.S. stock market's dividend metadata has been net negative. That's the longest negative streak for U.S. dividend paying firms since a 16-month long period during which the market's dividend metadata was net negative in 15 months, which ran from June 2022 through September 2023. That period coincidentally falls within the 2022-2024 earnings recession for the S&P 500.

References

Standard and Poor. S&P Market Attributes Web File. [Excel Spreadsheet]. Accessed 1 May 2025.

Image credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a Wall Street bear playing a casino game called 'Net Negative' and losing". We tweaked the text on the "Net Negative" sign to make it "Fabulous" and to take it out of Nevada.

The U.S. stock market has been around since the founding of the nation. In the beginning, it wasn't very diversified, but that's changed dramatically over time. In January 2019, Visual Capitalist visualized how much its compensation has changed over the preceding 22 decades. Here's their chart:

Today, if we were to catch the chart up through the end of 2024, it would show a new surge for the Information Tech and Communication sectors of the market, similar to the inflation phase of Dot Com Bubble from 1998 to 2000. As the chart shows, that bubble went on to deflate from 2000 through 2003. At the end of 2024, the new surge in these sectors led by the so-called Magnificent 7 stocks was still growing it its share of the capitalization of the entire U.S. stock market.

The market capitalization of the S&P 500 (Index: SPX) increased by a little over 2.5% during the fourth quarter of 2024. According to Standard and Poor, the index ended 2024-Q4 with a market cap of $51.86 trillion.

Since the end of the third quarter of 2024, the value of the Top 10 stocks within the market cap-weighted index rose from representing 34.6% of the index' total value to 37.3%, which means these ten stocks account for $3 out of every $8 of the index' total value.

The combined market capitalization of the Top 10 firms of the S&P 500 increased from $17.51 trillion to $19.35 trillion.

Meanwhile, the other 493 firms that make up the index collectively fell by $525 billion. The market cap of all these other firms rounded up to a total of $32.51 trillion.

The following chart shows the relative shares of the top 10 stocks in the S&P 500 at the end of the 2024-Q4.

Here are the approximate market capitalizations of each of the S&P 500's top ten component firms at the end of 2025's first day of trading on Thursday, 2 January 2025:

• Apple (NASDAQ: AAPL) $3,848,019,662,634 (7.42%)
• Nvidia (NASDAQ: NVDA) $3,542,045,053,341 (6.83%)
• Microsoft (NASDAQ: MSFT) $3,246,442,464,702 (6.26%)
• Amazon (NASDAQ: AMZN) $2,152,194,285,705 (4.15%)
• Meta Platforms (A) (NASDAQ: META) $1,363,920,716,001 (2.63%)
• Tesla (NASDAQ: TSLA) $1,156,480,302,921 (2.23%)
• Alphabet (A) (NASDAQ: GOOGL) $1,130,550,251,286 (2.18%)
• Broadcom (NASDAQ: AVGO) $1,104,620,199,651 (2.13%)
• Alphabet (C) (NASDAQ: GOOG) $949,039,889,841 (1.83%)
• Berkshire Hathaway (B) (NYSE: BRK.B) $860,877,714,282 (1.66%)

Apple (NASDAQ: AAPL) retained its position as the most valuable company in the world as measured by its market cap.

However, since the end of September 2024, Nvidia has surpassed Microsoft to become the second largest firm of the index, while Microsoft now ranks third-largest. Notably, each of the Top 3 companies of the S&P 500 has a market cap in excess of $3 trillion.

There was no change in the rankings for the next two slots. Amazon held onto fourth place and Meta clung to fifth place. Perhaps the biggest change was Tesla, which boomed upward to become the sixth largest company within the S&P 500 with a market cap exceeding $1 trillion.

While the remaining firms saw their market caps rise, their relative position within the index dropped. Class A shares of Alphabet (formerly known as Google) came in seventh. Broadcom jumped into eighth place, Class C shares of Alphabet kept the ninth slot, while Berkshire Hathaway's position went from being the seventh largest firm of the S&P 500 to become the tenth largest.

References

Standard and Poor. S&P Market Attributes. [Excel Spreadsheet]. 31 December 2024. Accessed 2 January 2025.

October 2024 proved to be a net negative month for the dividend paying firms of the U.S. stock market.

Although we've seen the positive development of eleven fewer firms announcing they will either cut or suspend their dividends when compared with the same month a year earlier, this improvement in unfavorable dividend actions has coincided with the negative development of 29 fewer firms declaring they will increase their dividends.

That's the difference that leads us to describe October 2024 as a negative month for dividend paying firms. The single number that describes the month is -18, which is based on 11 fewer firms announcing dividend decreases paired with 29 fewer firms declaring they will increase their cash dividend payouts.

All the month's favorable and unfavorable changes are tallied up in the following table.

The following chart visualizes the monthly counts of dividend increases and decreases from January 2004 through October 2024.

With two of the past three months having had a negative number for the net year-over-year change of favorable and unfavorable dividend actions, it looks like we can finally answer the question we asked after reviewing July 2024's dividend numbers of how long the positive trend we noted at that time would last. That trend no longer exists.

References

Standard and Poor. S&P Market Attributes Web File. [Excel Spreadsheet]. Accessed 1 November 2024.

Image credit: Dividends by Nick Youngson on PicPedia. Creative Commons Creative Commons 3 - CC BY-SA 3.0.

The numbers for U.S. stock market dividends took a distinctly bearish direction in August 2024.

We can see that in the form of a single number, which is simply the net year-over-year change in the number of favorable and unfavorable dividend actions. Favorable changes include things like dividend increases, resumptions of dividends after having been suspended, and also special or extra dividend payments for shareholders. Unfavorable changes include dividend decreases and omitted (or passed) dividends.

August 2024 saw the positive development of fewer unfavorable actions, with four fewer dividend reductions or omissions than took place in August 2023. That positive however was more than offset by the negative change in the number of favorable dividend actions, as thirty fewer companies declared they would boost dividend payments to their shareholders than did a year earlier. That makes -24 the single overall net number that describes August 2024's dividend actions.

That negative number continues an ongoing bearish trend for dividend payers in the U.S. stock market over much of the past year. The numbers behind our single number describing the trend for U.S. stock market dividends are presented in the following table, which gives the number of dividend declarations, announced increases, decreases, resumptions, omissions, and special (or extra) dividend payments for August 2024, showing how they changed month-over-month from July 2024 and how they changed year-over-year from August 2023.

While the net trend is negative, the overall level of dividend increases and decreased are still removed from the levels that would confirm the arrival of recessionary conditions in the U.S. economy. The following chart visualizes the monthly counts of dividend increases and decreases from January 2004 through August 2024.

August 2024 reverses the small positive net change recorded in July 2024 and resumes the negative trend we've seen develop in the data since 2023.

We sampled dividend decreases announced during August 2024, finding most were declared by firms that pay variable dividends in the oil and gas sector, which makes sense since oil prices have been falling during the past two months. Despite that, we find the number of these dividend decreasing firms remains well below the threshold we associate with recessionary conditions in the oil and gas industry.

The unanswered big money question is how long might that continue if the bearish trend for dividends continues?

References

Standard and Poor. S&P Market Attributes Web File. [Excel Spreadsheet]. Accessed 4 September 2024.

Image Credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a Wall Street bear looking at a crystal ball with the word 'DIVIDENDS'".

The second quarter of 2024 has come and gone. It was a surprisingly strong quarter for dividend paying stocks.

That's especially true in year-over-year terms, as more firms announced they were increasing their dividends while fewer firms announced they were decreasing them. Quarter-over-quarter, the picture appears more mixed, but mainly because the seasonal pattern in which the first quarter typically sees the most dividend rises.

However, that seasonal pattern doesn't hold for dividend decreases. 2024-Q2 saw significantly fewer reductions than were recorded in 2024-Q1, confirming the relative strength of the U.S. stock market during the period from April through June 2024.

Here's our chart visualizing the number of U.S. firms increasing and decreasing their dividends by quarter. The chart spans the last five quarters from the year ago calendar quarter of 2023-Q2 through the just completed quarter of 2024-Q2.

Focusing now just on June 2024, we once again find the year-over-year comparison with June 2023 is favorable. More firms announced dividend increases and fewer firms announced unfavorable changes in dividends. The month-over-month data appears mixed, but that's mainly because of the seasonal pattern in which the month of June typically records the fewest dividend increases of the year.

The following chart tracks the number of announced increases and decreases in U.S. stock market dividends in each month from January 2004 through June 2024.

The following table summarizes Standard and Poor's dividend metadata for June 2024, revealing how it compares both Month-over-Month (MoM) and Year-Over-Year (YoY) with previously reported data:

If you need to condense all this information into a single number to determine whether June 2024 was a good or bad month for dividend paying firms, you can find it by taking the number of favorable changes and subtracting the number of unfavorable changes for the month. For June 2024, we find 113 favorable changes and 4 unfavorable changes, giving us a net difference of +109 after the math. This positive result confirms June 2024 as a positive month for dividend paying stocks, especially when compared year-over-year with June 2023's result of +85.

As we close, we find there is a bearish storm cloud potentially developing in the U.S. stock market, which can be found in the earnings per share data for 2024-Q2 for the S&P 500 (Index: SPX). When we last looked at the index' projected earnings per share data six weeks ago, it appeared to be on track to complete the S&P 500's full recovery from its 2022 earnings recession in June 2024. However, S&P reports the index' earnings per share in 2024-Q2 came in less than what it recorded in 2024-Q1.

It's too early to tell if more negative changes for earnings lie ahead. But at a minimum, it means the full recovery from the S&P 500's 2022 earnings recession has been delayed for at least another quarter.

References

Standard and Poor. S&P Market Attributes Web File. [Excel Spreadsheet]. Accessed 1 July 2024.

Image credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a celebrating Wall Street bull that is nervously looking at a storm cloud that looks like a bear".

On 31 January 2024, New York Community Bancorp (NYSE: NYCB) dropped a bombshell earnings report. Instead of reporting anything close to the $0.29 profit per share investors expected, the bank reported a $0.27 per share loss.

That the situation was bad was confirmed by the bank's surpise "massive" dividend cut, which signaled the bank's management was seeking to raise capital. NYCB's quarterly dividend slashed by 70.6% from 17 to 5 cents per share. Investors responded to the sudden, negative change in their outlook for NYCB by sending its stock price plunging by 37.7%, falling from $10.38 at the close of trading on 30 January 2024 to $6.47 per share a day later.

Flashing forward to 1 May 2024, NYCB's dividend outlook got worse as its earnings for the first quarter of 2024 fell short of expectations. As part of its announced plan to recover its profitability, NYCB further slashed its dividend to 1 cent per share. The announcement plan boosted its stock price, which had dropped as low as $2.65 per share, but which through the end of trading on 10 May 2024 was hovering around $3.45 per share.

All the same, NYCB's stock chart looks brutal.

We opted to show NYCB's daily stock price over the past five years because the period before its earnings disaster became known on 31 January 2024, the bank appeared to have weathered the major economic and banking crises of the last several years fairly well. Its stock price had recovered from both the coronavirus pandemic and the March 2023 failures of Silicon Valley Bank and Signature Bank. In fact, NYCB was considered strong enough by banking regulators that the Federal Deposit Insurance Corporation facilitated its acquisition of Signature Bank' assets less than two weeks after its failure.

In doing so, the FDIC may have set up NYCB's own earnings collapse less than a year later.

While the Signature deal strengthened NYCB's balance sheet by adding low-cost deposits and brought with it a middle-market business, the transaction also "put us over $100B in total assets, placing us firmly in the Category IV large bank class of banks between $100B and $250B in assets and subjecting us to enhanced prudential standards, including risk-based and leverage capital requirements, liquidity standards, requirements for overall risk management and stress testing," said President and CEO Thomas Cangemi.

Prior to its FDIC-facilitated acquisition of Signature Bank, New York Community Bancorp fell below the $100 billion threshold. Banks below this threshold have greater flexibility in how they manage and underwrite loans compared to larger banks that have to routinely comply with costly federal banking regulations. Regulatory requirements with which NYCB had little experience in managing, which left them exposed to risks they hadn't fully appreciated would be a consequence of the acquisition and their change in status from a small to a medium-sized bank:

“As part of management’s assessment of the company’s internal controls, management identified material weaknesses in the company’s internal controls related to internal loan review, resulting from ineffective oversight, risk assessment and monitoring activities,” the bank said in the filing.

That leads to a good question. Why did federal regulators facilitate NYCB's acquisition of Signature Bank? Weren't they aware the bank's established loan review and risk assessment practices weren't capable of meeting the requirements of the new regulatory status into which they were promoting them? And if they were not, why not?

NYCB has put forward their plan to address their identified shortfalls in their loan review processes. Where is the federal regulators plan to address where they fell short in pushing through the acquisition to NYCB? What actions could they have taken to help get NYCB up to speed with their new regulatory requirements?

These questions must be asked because of what could happen the next time banking regulators have a crisis. Maybe the next time around, other banks that might consider assisting the rescue will sit out instead because of what happened with NYCB. What do you suppose the consequences of a failed bank rescue might be? The current system in which those who come to the rescue of a failed bank with the assistance of federal regulators are punished because of it doesn't qualify as any kind of smart policy.

If you think about it, the now demonstrated risk from increased regulatory exposure could lead other small banks to deliberately restrain their growth to keep their asset level below the arbitrary threshold regulators have set. What consequences to the industry and to the economy might follow from that?

Afterword

NYCB will partially address its "size" problem by getting smaller. The bank announced on 14 May 2024 that it is reducing its commercial real estate loan portfolio by selling $5 billion in mortgage warehouse loans to JPMorgan Chase (NYSE: JPM).

Image credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a bank building being pushed toward the edge of a cliff."

Imagine pouring sand onto a pile, one grain at a time. As the individual particles of sand are added, the pile grows larger, but seems to be otherwise stable. But as time goes by, something changes within that seemingly stable system. Instead of settling on the surface of the pile, adding another grain of sand causes an avalanche as rivers of sand suddenly break loose and rush down the surface of the pile. Kind of like what you see happen in the following short video:

What's happening in this scenario is some very complex and chaotic physics. Millions of individual particles are dynamically interacting with each other to produce this effect after they reach what's called a self-organized criticality. Once they reach this point, instead of acting like a somewhat solid and stable object, the individual grains of stand start moving together and flow like a fluid. That change is called a phase transition and its something of a signature of a system that's affected by quantum dynamics.

Of all the inventions humans have created, the stock market perhaps comes closest to sharing the same quantum-like properties at play in a sand pile. Every day, people engage in millions if not billions of transactions and, when all is going well, the value of their investments rise over time. Metaphorically much like a pile of sand. Until....

There's a new paper, published earlier this year, that caught our attention because it focused on the quantum-like properties of stock prices to explain why they suddenly break from their stable rising pattern, with investors randomly reacting to new information, and start behaving chaotically instead, with investors rushing for the proverbial exits all at the same time.

Here's an excerpt from the introduction of paper published by Kwangwon Ahn, Linxiao Cong, Hanwool Jang, and Daniel Sungyeon Kim that gets into the work they did to describe that phenomenon using the tools of quantum physics:

Stock markets exhibit universal characteristics similar to physical systems with considerable interacting units, for which several microscopic models have been developed (Shalizi 2001; Lux and Marchesi 1999). For example, the return distribution presents pronounced tails that are thicker than those of the Gaussian distribution (Shalizi 2001; Lux 1996; Mantegna and Stanley 1995). Several models have been proposed that phenomenologically show fat-tail distributions induced by investors’ herding behavior (Banerjee 1993; Topol 1991). Furthermore, Cont and Bouchaud (2000), Orĺean (1995), Banerjee (1993), and Topol (1991) showed that market participants’ interactions through imitation can lead to large fluctuations in aggregate demand and heavy tails in the distribution of returns. This approach had been formalized as a power law exponent at the tail of the distribution with a smaller magnitude associated with stronger herding behavior in stock returns (Nirei et al. 2020; Gabaix et al. 2005; Plerou et al. 1999; Gopikrishnan et al. 1999), trading volumes (Gabaix et al. 2006; Gopikrishnan et al. 2000), and commodity returns (Joo et al. 2020), which have been empirically investigated. Another stream of literature theoretically explains the power law in firm size distribution (Ji et al. 2020; Luttmer 2007) and trading volume (Nirei et al. 2020). However, these studies are limited to providing a connection between the power law exponent and other external factors, such as the business cycles and economic uncertainty.

We contribute to literature by explaining the role of economic uncertainty as a bridge between business cycles and investors’ herding behavior. Specifically, we propose a parsimonious model that employs quantum mechanics as an intermediate step to obtain the final solution and justify the power law distribution in stock returns. We start with the Fokker–Planck (FP) equation to model the dynamics of stock return distribution and derive the Schrödinger equation for a particular external potential (Ahn et al. 2017). The form of the potential is postulated based on empirical evidence of the evolution of stock returns in the marketplace. The solution suggests the existence of a power law for the tail distribution of stock returns. This also predicts a positive association between business cycles and the power law exponent. Our model provides new insights into existing research that models stock prices using random walks (Bartiromo 2004; Ma et al. 2004), quantum oscillators (Ahn et al. 2017; Ye and Huang 2008), quantum wells (Pedram 2012; Zhang and Huang 2010), and quantum Brownian motions (Meng et al. 2016).

We provide further empirical evidence on whether herding behavior in stock returns is negatively associated with business cycles. Furthermore, business cycles, which are often used as proxies for economic growth, are closely related to economic uncertainty, whereby it is believed that recessions are accompanied by higher economic uncertainty (Bloom 2014). Moreover, greater economic uncertainty leads to higher levels of uncertainty in the stock market. With greater uncertainty in the stock market, investors are more likely to mimic others because increased information asymmetry leads to fewer investors having confidence in their valuations (Alhaj-Yaseen and Yau 2018; Park and Sabourian 2011; Devenow and Welch 1996), amplifying investors’ herding behavior in the tail. As hypothesized, we find that herding behavior is stronger during recessions than booms and that economic uncertainty causes significant herding behavior.

In normal circumstances, individual investors respond to the random onset of new information and their responses are generally not synchronized with each other. And why would they be? For example, Investor A may be seeking to build their portfolio of dividend stocks to provide income in their near retirement. Meanwhile, Investor B may be focused on investing in growth stocks because it will be years before they retire. Investor C, on the other hand, is excited to speculate and chases after the hottest stocks. Investors D through Z, and millions more, approach their investments differently and, most importantly, mostly at random with respect to each other.

But when recessionary conditions take hold, which have the potential to affect millions simultaneously, the onset of new information associated with that developing state and the decreased certainty of continued stability would appear to prompt investors to act more like a herd, which is one of their two main macro-level findings.

Their other main finding is that applying a quantum model to stock prices can explain the tendency of investors to cluster around the center but also allows for "local" herding among extreme investors. That sounds very much like what you get from a stock market whose variation is best described with a Lévy stable distribution, which came up when we recently described the day-to-day volatility of the S&P 500 since 3 January 1950.

Going beyond the paper, we should note that such herd behavior doesn't only arise with developing recessionary conditions. Since 2008, we've regularly documented how investors alter the trajectory of the S&P 500 in response to market moving news, such as changes in the expected timing of interest rate changes. These changes arising from the same phenomenon can drive either rising or falling stock prices depending on other underlying factors. Since many of these changes aren't tied to any significant changes in investor uncertainty, there are still big research opportunities in this area.

References

Ahn, K., Cong, L., Jang, H. et al. Business cycle and herding behavior in stock returns: theory and evidence. Financial Innovation 10, 6 (2024). DOI: 10.1186/s40854-023-00540-z. [PDF Document].

Helmrich, S., Arias, A., Lochead, G. et al. Signatures of self-organized criticality in an ultracold atomic gas. Nature 577, 481–486 (2020). DOI: 10.1038/s41586-019-1908-6.

Julian Léonard et al, Probing the onset of quantum avalanches in a many-body localized system, Nature Physics (2023). DOI: 10.1038/s41567-022-01887-3. [Related preprint PDF Document].