The Zigmont Report (Daily Market Recap for 5/23/18)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $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


Fed minutes.  Overseas markets were off about 1 percent overnight and our markets fell in sympathy early on.  Premarket S&P futures were off 20 points around 8 AM and the S&P opened down about 11 points when regular trading began.  News wasn’t very interesting or compelling this morning and a lot of the overseas worries seem rooted in the strengthening US Dollar.  Anyway, the S&P meandered about until 2 PM, when the Fed released the minutes from their last decision, which was a do-nothing decision.  Once the minutes came out, the market climbed.

The Fed minutes are getting over-analyzed if you ask me but the important takeaway is that the S&P began clearly climbing on the release and bullish momentum self-reinforced for the rest of the session.

This wasn’t just an equity phenomenon either.  Yields across the treasury curve fell at the same time.  Both stock and bond markets are interpreting the minutes as a marginally dovish change.

Here are the key points from the Fed minutes:

  • They are clearly signaling another 25 bip hike for June 13
    • Markets were already near 100% in anticipating this though
  • They are not planning to alter their hike-path plan of 3 per year
    • They’ve been saying this for 2-plus years and they’re not changing anytime soon
  • They would tolerate a small inflation overshoot
    • A little hot data isn’t going to bump them from their plan

There were some market participants that thought *maybe* the Fed would throw a 4th hike into the year.  Those ideas should be considered dashed.  It’s not impossible but it requires and incredible spike in GDP and inflation.

Looking at the bigger picture, today was a fundamental win for the bulls.  It wasn’t huge but it was material.  The 4th hike is off the table so there’s some relief via the projected hike-path.

If there’s a surprise regarding today’s trading, it’s that the capital flow was light again (88%).

Prices of the markets reacted to the news today but the volumes didn’t.  It’s still a puzzle (to me).  Why is the usual money asleep?

See you tomorrow,
-Mike