A Continuing Wild Ride For The S&P 500 In Week 1 Of February 2018

Extreme choppiness was the name of the game for the S&P 500 (Index: INX) in the first full week of February 2018, as the Lévy flight crash that started last week continued to wreak havoc on stock prices.

The following chart updates the one we featured in our “chaotic carnage” post last week, which confirms the extent to which the market’s previous period of calm and relative order has broken down.

From its peak closing value of 2,872.87 on 26 January 2018 to the lowest-close-to-date since of 2,581.00 on 8 February 2018, the S&P 500 has swung through the equivalent of 8.5 standard deviations of the typical level of volatility that it saw in the preceding 21 months.

As for what prompted the sudden Lévy flight crash, there are quite a few candidates for consideration. For a solid overview, we’ll point you toward some of the more insightful analysis that we’ve seen in the past week, where we’ll encourage you to follow the links provided by the authors of each article for more information:

From the perspective of our dividend futures-based model of how stock prices work, we see the sudden decline of stock prices as simply a change in how far forward in time investors are looking, where the different expectations for the rate of change of dividend growth at different points of time in the future would appear to explain most of the change in stock prices, where we’ve seen investors myopically shift their focus from the distant future quarter of 2018-Q4 all the way back to the current quarter of 2018-Q1. For our model, when the gap between these different expectations are wide and investors shift their attention from one point of time in the future to another, the result will either be a Lévy flight rally or crash depending on the direction of the change in how far into the future investors are focusing their attention.