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
The answer is growth. US equities rallied again today. The news was trivial but all the big earnings announcements were beats and the macro data suggests a 4-ish percent GDP number for the US in the 2nd quarter. This fostered the growth story further and investors took that ball and ran with it.
Growth keeps the rally going. Growth will keep the bull market going. If the growth comes, the gains will come.
That’s the narrative. Valuations aren’t part of the story, which we already knew.
Obviously growth is good. At the national level, growth will solve the budget deficit. At the corporate level, growth will promote spending and investment. At the individual level, growth will benefit everyone.
There’s no debate (from me) on these points. The problem is that the market is ignoring the *risks* to the expected growth.
The trade war issue is alive and well in the real world but in the investment community it’s as dead as disco.
The Fed Chair’s testimony before the Senate and the House confirms the Fed’s intention to continue raising rates (for a while) but the maxim of not fighting the Fed is presently ignored.
The flatness of the yield curve (and the weakness in credit markets) are flashing warning signals but the signals of the fixed income/credit markets are being treated as a mere curiosity.
We could obviously go on further but there’s no reason to beat a dead horse.
The US equity market is *myopic.* There is only one possible outcome according to equity markets, growth-driven appreciation.
That’s not true obviously but until the equity market begins to recognize the downside, this tape-chasing momentum play higher is going to continue.
I said yesterday that it was worth jumping on but I didn’t have the courage to do it. I still feel that way but as the boy who’s been crying wolf for more than a year, I’m on thin ice.
I think the best thing I can do, is to make small, bearish moves and to wait. The go-go permabulls could certainly rip things higher for longer…. So I don’t want to risk my hide by pretending I’m Gandalf.
I do want to go against the crowd though. And the crowd is in love with getting longer.
See you tomorrow,