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
Leadership change? The tech stocks have been underperforming for a while and with today’s selloff, that fact is getting more attention. The recent stretch of tech underperformance isn’t just a blip though. One could argue that we’re witnessing the beginning of a rotation. Here’s a picture since June 1.
Is this a smoking gun? No. It is a reason to perk up one’s ears. If you are a valuation bear (like me), it’s a reason to anticipate a bearish stretch. This is because there is no other sector to lead US equities higher (who is going to deliver the growth?). It’s tech or nothing. If tech has run out of gas, so has the broader market.
Here’s the rub. We’ve been through all this before. Valuations have been stretched for over a year and every single dip along the way has been a bear-trap. Bulls are just shaking their heads laughing…wondering when those silly bears will learn their lesson finally.
And of course nobody knows who’s right and wrong yet.
Let’s quickly change topic. Today’s ADP data (158k vs 188k est & 230k prior revised from 253k) was uninteresting. It looks like tomorrow’s NFP (178k est vs 138k prior) will also be uninteresting. Markets won’t be surprised. Why am I mentioning these non-events?
Because this potential rotation is happening *in the absence of significant information.*
It is a change in the whimsy of the market. It is not a response to a fundamental change in the investing landscape.
This means that I am standing on shaky ground, but at least I know that. It is a very speculative call (or play) to treat US equities as turning.
I still think the turn is actually happening. I think the risk/reward to the downside is better than the upside…but I would not die on that mountain. Small and nimble speculations only.
See you tomorrow,