The Zigmont Report (Daily Market Recap for 7/25/17)

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 shortly after the market close.

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

Earnings wave.  Lots of companies announced last night and today and the larger takeaway is that earnings season is good-to-great.  The narrative is one of broad growth.  Let’s just check in on the season so far and see.

2017 Q2 Earnings season (before today’s close):

21% of the S&P 500 reporting (+10% vs 7/20 data)

Surprise vs Estimates

  • Sales: +0.8% (-0.3% vs 7/20 data)
  • Earnings: +4.8% (+0.2% vs 7/20 data)

Growth vs Prior (Y/Y)

  • Sales: 3.3% (-0.9% vs 7/20 data)
  • Earnings: 2.9% (-2.7% vs 7/20 data)

Changes are mostly negative but growth numbers are still respectable.  Financials made up the majority of the first earnings results, so this is more representative of the broader market.  These numbers are good enough to preserve the constructive sentiment of the season.  And that’s all that matters.

We get another big wave of announcements tonight and tomorrow but we are already turning our attention to the Fed.  They announce their latest decision tomorrow at 2 PM.  Expectations are for no change and they are essentially unanimous.  If there’s going to be a market reaction, it’ll come from parsing the statement.

We’re all wondering if current consensus remains valid.  The two main policy expectations are:

  1. Balance sheet will begin to shrink in September
  2. Another 25 basis point hike could come in December

How the statement shapes those expectations is what will matter.  There’s a small split in the market as to whether the Fed will continue to normalize on its announced trajectory or whether they will slow down.

We shall see tomorrow.

See you tomorrow,