The Zigmont Report (Daily Market Recap for 9/18/18)

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.

The dip was bought.  Asian equities rallied nicely overnight and European markets were up small when our market opened.  The dip-buyers finally made their move and they walked the S&P up, undoing all the damage from yesterday.  As per usual, there weren’t specific headlines to point to.  Counterintuitively, the Chinese announced that they were forced to implement more tariffs on US trade in response to the tariffs that Trump announced last night.  That doesn’t sound bullish to me but the market didn’t care a whit so perhaps I’m mistaken.

Anyway, the equity market printed a solid gain today and it looks very reflexive (to me).  Where does that leave us for tomorrow and the rest of the week?  Is this pop enough to spur more momentum to the upside or will the bears take their turn?  There’s no good indicator to look at right now but history favors the bulls.

In the Treasury market, rates climbed modestly across the curve.  The 10-year yield climbed to 3.05%, above the noteworthy 3% level.  It last closed up there in May.  Other Treasuries are setting new 1-year highs or coming close.  The bond *bear* market looks like it might be back in motion.

Bear market or not, the market *divergence* issue is back.  Equities and bonds are not interpreting things similarly.  Maybe bonds are simply anticipating stronger GDP…. and this would fit with equity bullishness.  I don’t think that’s crazy.  But Treasury markets *usually* price higher rates in anticipation of Fed hikes, which can/should slow the economy, which should pressure equity markets downward.

Are both markets seeing the economic glass as half-full or is one market just wrong?

I don’t know but the situation has me scratching my head.  I also wonder if it’s even worth pondering because in 8 days the Fed is going to guide rate-hiking expectations.  We will have much more clarity then.

See you tomorrow,
-Mike