The Zigmont Report (Daily Market Recap for 6/12/17)



FintekNews is pleased to launch our new feature “The Zigmont Report (Daily Market Recap)” today.  We will publish this right after the market close, and each feature will appear the following morning on our M/W/F newsletter as well. 

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 shortly after the market close.


The opinions expressed below are my own and do not necessarily represent those of Harvest Volatility Management, LLC.

Cool as a cucumber.  Friday’s selloff carried through the weekend just a little bit.  The bears are thrilled even though the aggregate size of the decline is trivial.  Since Memorial Day the S&P has finished down 6 out of 10 sessions.  Compared to trading from the election to Memorial Day, that’s miraculous (for the bears).  I don’t think bulls, and most importantly the in-the-wings dip-buyers, are phased one bit though.  The mantra of buy-the-dip is so powerful, a little bit of weakness isn’t going to change the investing public’s behavior.

If we are experiencing a roll over in US equity markets due to valuation, it will continue very gently.  It will not be like other selloffs, unless we get devastating news.  My point is that even if the bears are about to control the tape, they aren’t going to be able to drop prices viciously.

Let’s get back to today.  It was pretty dull with respect to headlines.  This is par for the course this year.  The capital flow was very heavy though.  Today the total dollar volume of transactions on the US exchanges was 135% of the 90 day average.  FYI, I prefer to look at dollars traded instead of shares… tomato/toe-mah-toe probably but that’s the way I do.  Here’s the plot for today.

 

Capital flow is interesting to me because it has been quite light until last week and today.  Money is waking up again and re-engaging with US equities.  This is without a big news catalyst, which is the oddest part.  Maybe it’s just a big asset allocation at work.  Maybe it’s rotation from tech to other stuff.  I don’t know but investors are no longer on the sidelines.  In the grand scheme of things I take that as a positive.

Moving along, the big event of the week will be the FOMC decision on Wednesday.  Fed Funds futures markets are pricing in a 97% chance of a hike and of 101 estimates on Bloomberg, 97 expect a hike.

These expectations have been in place for a while, albeit with less certainty, and the Street’s expected a hike for a while… and here’s the most important part… the Fed has known this.  The Fed has been extremely vigilant in managing investor expectations over the normalization phase.  If the Street had it wrong a while ago, the Fed would’ve made noises.  The Fed has not wanted to surprise markets for the longest time and it has been especially gentle during the normalization.

I think a hike to the 1-1.25% range is in the bag.  We shall see of course but I don’t expect significant market reactions to the hike.  The guidance for the next hike and the future hike-path will have everything to do with Wednesday’s market reactions.  One more hike in the Sep-Dec period of 2017 is the current expectation and that fits with the plan of the Fed to hike 3 times this year.

The statement and Yellen’s press conference will be key for shaping/changing those expectations.

See you tomorrow, it should be quiet as we wait for the FOMC on Wednesday.

-Mike


Mike Zigmont has more than 12 years experience in volatility trading, research and structuring. Previously an Equity Options Trader and Quantitative Analyst with Volaris, Credit Suisse’s volatility management unit, he was responsible for risk management of OTC and listed options on $4 billion of client assets. Subsequent to joining Volaris, Mike was a Vice President with Morgan Stanley in the Structured Investments Group and OTC Hedging Desk within the Institutional Equities Division. He holds a B.A. in Engineering Sciences from Dartmouth College and studied at the University of Mainz in Germany.The opinions expressed in The Zigmont Report are his own and do not necessarily represent those of Harvest Volatility Management, LLC….