Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $12B AUM, offering volatility management solutions to its investor base worldwide. Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business since 2008, sending it daily shortly after the market close.
The opinions expressed below are my own and do not necessarily represent those of Harvest Volatility Management, LLC.
Rough waters. Overseas markets were off small when our market opened. We traded down small in sympathy. Financial news wasn’t very interesting and the tape was pretty calm until the 11 AM (the last 30 minutes of European trading). Both Europe and the US slipped significantly in that period (the pattern continues). When Europe closed, the damage was done and unlike past sessions, the US dip-buyers couldn’t repair it over the rest of the day.
The headlines of the day focused on US/Saudi relations. That’s obviously important but I don’t think that’s the fundamental driver of the selloff. I think that’s just the prominent story which people point to as the defacto reason for the slide.
I’ll say it again: we are experiencing a sentimental shift and there are hiccups along the way. We are going from a market narrative that was “go go go, buy every dip, stocks are bulletproof” to “hmmmm, maybe not so much anymore.”
There are fits and starts to this change too. We saw the bulls push the tape on Monday, and the rallies they cause get investors to re-believe in the upside. Then the bears make their move like today and the market starts questioning things again. It is a messy transition. Along the way, we’re all going to say “hey it’s not that bad” and the tape will zoom like a rocket. Then we’re all going to say “hmm maybe things aren’t so great” and the tape will sink like a stone.
How many times we gyrate and where we end up is anyone’s guess.
I do not think that this dip is like the past 9 years’ worth. I think a lot of people are playing it that way though and they are going to lose money.
This time it’s different is the dreaded phrase on Wall Street. The joke is that it’s trotted out right before we all realize it’s *never* different. The dot-com bubble was the most famous example of this group delusion but it shows up in all sorts of pockets of markets.
Attention investors: this time it’s the same!
What I mean is that the Fed is normalizing and volatility is returning and risk is becoming a focus again. The *abnormal* period was the past few years. This-time-it’s-different is the explanation we all told ourselves as we marched valuations north…as the Fed began hiking…as we projected double-digit growth for the entire market…as we assumed every half-percent dip was bargain… as we saw equities deliver double-digit returns with trivial risk.
We’re *leaving* the this-time-it’s-different phase.
It’s going to take time for the bulk of investors to come around to that conclusion.
That psychological transition will take time and will be bumpy.
See you tomorrow,