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
No surprise…. Except for the price action. The Fed left rates unchanged. The forward guidance wasn’t very clear but it sure looks like they are going to stick with the plan of 3 hikes per year. Steady as she goes.
When the statement released, the S&P was down about 3 handles. Robots pushed the S&P to up 6 handles 12 minutes later. The tape fell steadily from there and finished off 19 handles.
All this happened on low volume. The capital flow was tracking at 90% before the statement and finished the day at 93%.
Bonds rallied on the short end and sold off on the back end.
The Dollar sold off on the release and rallied for the rest of the afternoon.
So….. let’s ignore the initial moves the robots and fast-actors caused. After 15 minutes:
- Equities didn’t like
- Investors were NOT active however
- Treasuries steepened the curve
- The Dollar strengthened
There’s no clear signal as to what the market is trying to price in right now. It’s odd.
At this point, I want to go back in time to the last time the Fed robotically and very clearly hiked rates for a while. This is the ’04-’06 period. You can see the Fed Funds Target Rate below. The red circles indicate the beginning and end of the hiking as well as the beginning of the subsequent easing.
And here is how the S&P reacted along the way too. Notice that the S&P didn’t mind the actual hiking process…
These charts don’t provide a good explanation for what *might* be happening in the market.
But here’s what I think. The last time the Fed went on hiking autopilot… they hiked until they broke the tape. The market didn’t figure out until it was too later though.
I think right now, investors are assuming that the Fed will continue hiking *until they break* the market and/or economy.
So if the Fed is ultimately going to crack the market/economy… why buy? I think the bearish weight of the tape *might* be the market discounting the eventual end of the party.
At least that’s what I think. We shall see whether that makes sense or not over the rest of the year.
See you tomorrow,