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My Gut Feeling For Today, March 30, 2020: Suffering From Leptokurtosis

April 30, 2020

Financial markets around the globe are suffering from a bad case of leptokurtosis. This is not a viral disease but a statistical condition. Leptokurtosis is what is known as “fat-tailed” returns. Put another way, market returns are larger – both up and down – than under normal market conditions. Not only are closing returns much greater than normal, but so are the intraday swings. This makes for treacherous markets.

In jut six weeks; we went from record stock market highs to the fastest and deepest sell-off in nearly a century to the best week ever for the stock market. In Yiddish, we say that this is mashugana (craziness, nonsensical)

That pretty much sums it up – we are experiencing treacherous market conditions. It is also physically and mentally exhausting. Not until the day to day and intraday moves settle down will markets normalize. Historically, according to my research, daily, on average, the S&P 500 (SPX) moves by .03% with a standard deviation of .91%. Thus, on any given day we can expect the SPX to move in a range of -.88% to +.94%. Furthermore, daily, on average the SPX will move by about 1.4% from its high to low print.

During the month of March 2020, as the coronavirus has infected people and financial markets, we are consistently experiencing daily market moves of 3% to 5% to 10%, both intraday and from day to day. Hence, leptokurtosis and volatility. As you can see, these are not normal times.

We are beginning to move toward a normalization of markets in ranges that I outlined above. However, it is a process for which we must endure (and respect). First though, we must get through quarter-end volatility and index / portfolio rebalancing.

Last week equity markets had a strong rally off recent lows. I am still expecting mean reversion of the SPX to about 2,750 – 2,800. Once we get to that level the market could do an about face and head back to or near coronavirus lows of 2,192 for the SPX.

In the interim, I have been restructuring all LakeView Asset Management stock-based strategies. Whatever worked on the last market rally in 2019-20 will not necessarily work in the coming market rally. Also, there are some stocks, take Delta Airlines (DAL) for example, that got so cheap, that it was worth a trade. Hence, for the time being I am putting on my trading hat and setting aside my investment glasses.


Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long MPC -  although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high net worth private wealth management. LVAM is affiliated with Kingswood Wealth Advisors Services, a registered investment advisor. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ

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