The Zigmont Report (Daily Market Recap for 10/2/18)

Mike Zigmont

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.

Pretty uninteresting.  US equities wandered around today and it didn’t appear that equities had a bullish or bearish trend underneath the surface.  We started down small climbed to up small and finished unchanged….all on slightly elevated capital flow of 106%.  It was a going-through-the-motions day.

What did PepsiCo say?

PEP announced earnings this morning and they beat analyst expectations across the board and the stock fell almost 2%.  Hmmm.  There are a few things to note here:

  • The analyst management game continues and is increasingly meaningless
  • Cost pressures were noted (transportation, aluminum)
  • Currency pressures were noted (stronger USD)
  • The company cut their full-year profit forecast

Conclusions:

I’m going to be *ignoring* whether the coming reporting companies beat analyst expectations.  Last quarter I think 80% of firms beat.  The analyst numbers are no longer representative of what the investor population thinks.

Guidance is key.  Management expectations probably override what just happened in the quarter.

There are headwinds (for some companies).  The weak dollar, cheap energy, and absence of tariffs helped a lot of companies last year.  Those same forces have gone from helpful to hurtful.

I don’t (necessarily) think these things will result in a bearish earnings season.  I speculatively extrapolating from *one* multinational consumer goods company.

But…. If I’m right, a new shot of bullish energy for the market is unlikely.  If a few more firms confirm PepsiCo’s experience, I think new all-time highs will not show up in the next month.

Big banks start reporting 10/12 so we have to wait to learn more but for the moment I think the bulls have had a little cold water splashed on them.

See you tomorrow,
-Mike