2021 ended with a possible solution to the question of "what causes a Santa Claus rally on Wall Street?"
That's because investors shifted their forward-looking focus from 2022-Q1 to the more distant future quarter of 2022-Q4. The Lévy flight shift began on 22 December 2021 and was completed a week later on 29 December 2021, with investors' attention remaining fixed on 2022-Q4 as 2021 came to an end.
In 2021, that shift meant a late year surge in the S&P 500 (Index: SPX) according to the dividend futures-based model we use to project the potential futures for the index.
How long they might keep their attention on that specific point of time in the future remains to be seen, but any shift in focus to the nearer term future will almost certainly be accompanied by a noticeable downward movement in stock prices when it occurs. We anticipate such Lévy flight events will contribute to outsized volatility during 2022 given investors' current expectations for changes in the rate of growth for dividends.
What we don't know is when that might happen, which will be driven by the random onset of new information. Speaking of which, here are the headlines we noted for their market moving potential during the last two weeks of 2021.
- Monday, 20 December 2021
- Signs and portents for the U.S. economy:
- U.S. home sales to rise 7.1% in 2021, fall next two years - Fannie Mae
- Manchin delivers potential fatal blow to Biden's $1.75 trillion spending bill
- Bigger trouble developing in China:
- Bigger stimulus developing in China, Japan:
- China cuts lending benchmark, market sees more easing in 2022
- Japan parliament approves record extra budget to secure post-pandemic growth
- ECB minions starting to be concerned about inflation:
- ECB governors sought greater acknowledgement of inflation risks - sources
- ECB's Centeno warns of inflation uncertainty, urges caution
- Wall Street skids on Omicron worry, obstacle to Biden social-spending package
- Tuesday, 21 December 2021
- Signs and portents for the U.S. economy:
- Oil prices rise but Omicron worries linger
- Grinch hits candy cane makers with sugar shortage, twisted supply chain
- How Biden’s appeals to U.S. unvaccinated went from beer and cash to ‘illness and death’
- Bigger trouble developing in Eurozone:
- Wall Street surges after Omicron selloff, with boost from Nike, Micron
- Wednesday, 22 December 2021
- Signs and portents for the U.S. economy:
- U.S. existing home sales rise in November; supply remains tight
- U.S. mortgage application volumes near 2-year low
- U.S. consumer confidence improves further in December
- Oil prices rise on a decline in U.S. crude inventory
- Eurozone governments have perverse incentives for not raising interest rates to fight inflation:
- German government makes billions from debt thanks to negative rates
- Analysis-Italy faces debt doubts again as ECB dials back support
- ECB minions in no rush to raise interest rates to fight inflation:
- Wall St mints strong gains on rosy economic data, encouraging Omicron update
- Thursday, 23 December 2021
- Signs and portents for the U.S. economy:
- U.S. economy shows strength heading into COVID-19 winter wave
- New Home Sales Jump To 7-Month-High, Despite Massive Downward Revisions
- U.S. auto sales to fall in December due to supply constraints - data
- U.S. core capital goods orders unexpectedly fall in November
- Bigger stimulus developing in China:
- BOJ minion starting to think BOJ's monetary policies aren't working, Japanese politician wants more of the same:
- BOJ's Kuroda warns weak yen hurting households more than before
- Japan PM Kishida calls for BOJ efforts to hit inflation target
- U.S. stocks end at record high, oil prices rise as Omicron fears abate
- Monday, 27 December 2021
- Signs and portents for the U.S. economy:
- Oil prices rise to highest level in a month as Omicron concern eases
- U.S. holiday retail sales rise 8.5% as online shopping booms -Mastercard
- Bigger trouble developing in China:
- Bigger stimulus developing in China:
- S&P 500 set to end at record high on retail sales cheer
- Tuesday, 28 December 2021
- Signs and portents for the U.S. economy:
- Brent nears $80 as market shrugs off Omicron
- Omicron Now Accounts for 59% of U.S. COVID-19 Cases, According to Public Health Officials
- Recovery signs developing in Japan:
- S&P 500 ends lower after four-day rally to record high
- Wednesday, 29 December 2021
- Signs and portents for the U.S. economy:
- Bigger trouble developing in China:
- Dow, S&P close at record highs as Omicron worries ease
- Thursday, 30 December 2021
- Signs and portents for the U.S. economy:
- Bigger trouble developing in China:
- Bigger inflation developing in Eurozone:
- ECB minions expecting higher-than-target inflation through 2022, possibly lower-than-target inflation after; want to end negative interest rates to stimulate Eurozone economy:
- ECB's Knot: good chance inflation remains above 2% after 2022
- ECB 2023/24 inflation forecasts subject to downside not just upside risks -Visco
- ECB's Holzmann says crucial to phase out negative interest rates in 2022
- Wall Street closes down, indexes still poised for big annual gains
- Friday, 31 December 2021
- Signs and portents for the U.S. economy:
- China factories see pickup in December:
- Wall Street dips as it crosses finish line of tumultuous year
Through 31 December 2021, the CME Group's FedWatch Tool is predicting the U.S. Federal Reserve will hike the Federal Funds Rate four times, with quarter point rate hikes in March, June, September, and December 2022.
And finally, here's a snapshot of CME Group's Quarterly Dividend Index Futures for each quarter through 2022 as of the end of 2021:
How much will expectations for the future change during 2022?