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
Quiet doesn’t mean up anymore. The S&P dropped again today. News was light and the continuation of good earnings reports didn’t inspire investors broadly. Capital flow was light again today at 88%. This is noteworthy for a couple of reasons.
- We’ve had light activity all week. How come investor activity isn’t waking up for earnings season?
- Today was option expiration. The flow normally would be 120-140% just because of that. Today’s number is VERY low when you factor in option expiration.
So here’s what I’m trying to say: investors are very inactive. I can’t explain why. Earnings season is usually a significant catalyst for activity. If earnings surprise, investors should respond. If earnings disappoint, investors should respond. I can only *guess* that the earnings so far are so thoroughly expected that investors are seeing the results and deciding not to act.
Coming full circle, the only pseudo-significant conclusion I’m making is that the way the market handles a quiet environment has changed. Quiet used to mean a drift higher. Quiet used to be the ally of the bulls. As of this week, that changed.
Is that a larger sign? Maybe, maybe not.
What it means for us is that the bullish/bearish scale has tipped a bit in favor of the downside.
I don’t know if this tilt lasts for a short time or a long time though. It is a subtle change in the sentiment of the market. It’s worth thinking about regardless.
Let’s do our first dive on earnings this season. We’ll keep it short and sweet and call it a weekend.
2018 Q1 Earnings season:
13% of the S&P 500 reporting (4/20 data)
Surprise vs Estimates
- Sales: +1.8% (4/20 data)
- Earnings: +6.1% (4/20 data)
Growth vs Prior (Y/Y)
- Sales: +9.7% (4/20 data)
- Earnings: +22.6% (4/20 data)
- Respectable surprise numbers but remember the expectations game is rigged.
- Excellent growth numbers but remember it’s a one-time bump.
The market, at least at the single stock level, is saying thank you for the record earnings but what about the next 2-3 years?
That makes sense to me. Also, there are pockets of speculation here and there about when the next recession is going to show up. Is it close or far? Will it be shallow or not? Why are interest rates flashing some warning signs?
With those larger concerns circling, it makes sense to me that the market may be done projecting optimism and expanding multiples.
Have a great weekend, see you Monday.