The Zigmont Report (Daily Market Recap for 7/25/18)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $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 and do not necessarily represent those of Harvest Volatility Management, LLC.

Earnings season narrative.  Earnings season is rip-roaring and the narrative of the season is solidly bullish.  The S&P is climbing and the reason why is “earnings season.”  The beats are everywhere.  89% of companies beat the analyst earnings expectations.  This is the highest number ever.  The data goes back 25 years by the way.  That is obviously cause for earnings season enthusiasm.  It’s easy to understand and provides ample justification for longs to get longer and bulls to keep bulling.

We’ve discussed all the caveats before but those are being ignored.  The story is the force behind the tape and that’s all there is to it.  It is doubtful that any future earnings results will puncture the narrative.  The only question is how much further the earnings season excitement can take us?  Facebook announces tonight.  They are going to beat…they are going to add to the bullish hoopla.

Anyway, let’s look at the overall earnings season a little more closely.

2018 Q2 Earnings season:

19% of the S&P 500 reporting (7/25 data)

Surprise vs Estimates

  • Sales: +1.3% (7/25 data)
  • Earnings: +5.2% (7/25 data)

Growth vs Prior (Y/Y)

  • Sales: +8.8% (7/25 data)
  • Earnings: +23.5% (7/25 data)

These are all impressive numbers.  We should not be surprised that the earnings season narrative is as rosy as it is.

The question that the market isn’t asking very seriously however is: a what price?

These numbers are great.  No argument here.  But how much should one *pay* for these numbers?

The market’s answer is simple: more.

Pay more than yesterday.

One last item.

In the last 30 minutes of the day, a leak of EU trade concessions and a US/EU trade deal popped out.  Supposedly a trade war with Europe has been averted.  The S&P popped 15 handles on the news and bond prices dropped materially across maturities and the Dollar weakened against the Euro.  Risk-on was the big macro response at the end of the session.

See you tomorrow,

-Mike

P.S. Facebook beat on earnings but missed on revenues.  FB is down 10% in the after hours trading.  Nasdaq and S&P futures are down in sympathy.  As usual, I would not pass judgement immediately.  We need to see what the reaction is tomorrow morning.