Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B 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
Payrolls! February nonfarm payrolls were through the roof (313k vs 205k est & 238k prior revised from 196k). US equity futures were about flat before the release. They rallied 15 handles almost immediately and the human bulls just pushed things higher from there. Equities climbed consistently over the day and the narrative was that this was a Goldilocks number.
Wage gains were less than expected and the market thinks that this means inflation isn’t something to worry about therefore the Fed isn’t going to get more aggressive. US bonds didn’t quite agree. Treasury yields climbed 1-4 bips across the curve. That’s not too much of a move and the bond market certainly isn’t making a stink about today’s payrolls… but rates went higher nonetheless.
Equities are unconcerned. The bulls are back in charge of the tape and it’s just as simple (in the short-term) as might makes right. The bulls are pushing their capital around and the bears are the whipping boys. Buy-the-dippers are looking justified again. The more things change, I guess.
Anyway, here we are at the close of a great week for the longs. Whatever data we saw and policy we witnessed, it was interpreted bullishly by the market. The next big thing will be the FOMC meeting on March 21. The market is pricing a 25 bips hike with near certainty and there’s about a 1/8 chance of a 50 bips hike.
I haven’t heard anyone mention a 50 bip hike as a possibility but obviously the fed funds futures market is giving it a bit of respect. The equity market is completely unprepared for something like that. Equity investors and strategists are operating as if 25 bips is a lock, which I think if fair, but they are not acting as though a more aggressive hike-path is right under our nose.
It is more and more likely that the Fed hikes 4 times this year. Equities don’t seem to mind.
Rates matter. I don’t know when equities will remember that but they will.
Have a great weekend, see you Monday.