The Zigmont Report (Daily Market Recap for 1/14/19)

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 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.

Not awful.  Earnings season is here, kinda sorta.  Citigroup reported this morning and the earnings beat but the revenues didn’t.  The stock traded 4-plus percent higher.  Financials all rallied in sympathy today and the sector was the top performer for the day.  Financials were the only positive sector today, by the way.  JP Morgan and Wells Fargo will be scrutinized tomorrow morning and then a wave of other financials report over the rest of the week.  Those results will obviously matter too, but assuming there are no devastating results out there, the financials look to be OK – for the moment.  That’s a positive for the overall market.

Now before you go crazy hitting the buy buttons and taking advantage of this dip…..just understand that Citi is trading at a PE of 9 and a forward PE of 8 and a price to book of 0.8.

The S&P 500 is trading at a PE of 16, a forward PE of 15, and a price to book of 3.2.

So my point is that the supposed bottom for financials doesn’t equate to the bottom for the broader market.  The broader market isn’t rich but it isn’t cheap either.  I think most investors would agree that financials are cheap.

My initial point of the day is that this first taste of earnings season is OK.  It’s not wonderful but it’s not a disaster.  This is a single sample in a beat-down sector so don’t extrapolate anything just yet.  But if there is *something* broader to be gleaned from today it is that we are *probably* not on the verge of an earnings implosion for the entire market.

The fear that earnings would be so terrible that equities would crash…was an unspoken tension in the market and a wishful hope of the bears.  That possibility was remote before today…now I think it’s impossible.

I hope those aren’t famous last words.

We shall see.  Lots more earnings to help us form a picture going forward.  I see no good reason to speculate here.  I think it’s much better to wait-and-see.

See you tomorrow.
-Mike