The Zigmont Report (Daily Market Recap for 12/7/18)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $12B 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.

The Fed will not be the problem.

Nonfarm payrolls (155k vs 198k est & 237k prior revised from 250k) were a little soft.  The equity market rallied on the release as investors (rightly) thought to themselves that the Fed will have to slow down.  But then investors started to do a little more thinking.  The data is rolling over now….so while that means the Fed is not the problem, we have to consider that softening economic data is.  Let that sink.

Just yesterday we were considering the need of the market to go from emotions swinging on unguided expectations to reactions triggered by data.  Well that transition may have happened today.

The data is now giving us some guidance (which is good).  We can now use changes in the emerging data to craft our slowdown expectations.

The bad part is that we are going to continue to be in a volatile period as we figure out how much to adjust our numbers/expectations by….but at least this volatility will be driven by data and news instead of whimsy.

So let’s discuss the day.  The bears chalked up another substantial win.  We are factoring in a slowdown now.  An example:

In light of the nonfarm data today, the Atlanta Fed revised their Q4 GDP estimate down to 2.4% from 2.7%.

The likely growth for Q4 of ’18 and the first few quarters in ’19 is going to be under 3%…  what if we see a 1 handle in a quarter or two?  That is not a recession but it is very meaningful at the margin and so it matters significantly to the valuation of the entire equity market.

Analysts and strategists across the street are going to be changing their models this weekend.  Shave a tenth or a couple tenths here and there from GDP… company analysts will shave a percent or two here and there from their estimates.

New valuations will emerge.

And from there we will adjust.

We’re going to be watching data now and the data will matter.  The next big thing is the FOMC decision but even if they hike (64% prob right now), they are going to react to the data (which is already changing) and let the market know that clearly.

See you Monday, have a great weekend.