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
Positive economic developments. The bull is alive and kicking and received some support on the fundamental front today. Various economic metrics are telling a slightly better economic story. Two standout/important data points were:
- August ADP (237k vs 187k est & 201k prior revised from 178k)
- Q2 US GDP 2nd estimate (3.0% vs 2.7% est & 2.6% prior)
Markets didn’t react immediately to these data points but I think this data supports the bullish narrative nicely. The US economy is warming up. That’s generally good. That’s been the annual (misplaced) hope since 2010. Maybe this is finally the year that the US accelerates from its moribund growth rate.
That’s the half-full argument.
The half-empty argument is that this gives the Fed more cause to hike in December and to continue the normalization path *as advertised.* That hiking path was never intended to break equities but at some point higher interest rates must act as gravity on valuations…. That’s not going to happen in the short run but if the market is looking out 6-12 months… the clock must be ticking.
Rates climbed a bit today but nothing too significant. Certainly fixed income markets didn’t ramp up the probabilities of hike in December (33% chance right now), but I think that will climb over time. Nonfarm payrolls data (180k est vs 209k prior) on Friday will go a long way towards moving expectations if it confirms today’s ADP numbers.
In the meantime, we’re finishing up August with a bullish whimper. Capital flow was light again at 83% but info tech led the way as the S&P is attempts to shrink the losses for the month (-60 bps right now).
I don’t expect much excitement tomorrow but I think another modest rally is in the cards. It’s the last chance to put August money to work in a down month and I don’t think money managers are going to pass on that opportunity.
See you tomorrow,