The Zigmont Report (Daily Market Recap for 2/4/19)

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.

Bulls marching.  Info tech led the market higher today.  Google announces after the close and investors bid it up about 2% today, so expectations are for some positive numbers.  More broadly speaking the risk-on trade was back in motion today.  It wasn’t a big move but stocks were up and bonds were down and the news today was light.  Certainly there’s technical continuation and improving sentiment at work.  After January’s climb, it’s noteworthy for the party to continue.  Earnings are now the prominent influences of the market and the results are inspiring the bulls.

I’m not sure why the season, mostly OK with some ho-hum guidance, is kicking the tape higher.  Here we are again, stretching valuations in the face of some mediocre projections.  In December, valuation was the front-and-center issue.  Price mattered as the market reconsidered weakening expectations.

That is no longer the case.  Valuation concern is sidelined and the growth expectations are modest but seemingly certain.

Obviously the Fed plays an important role in this psychological shift but we’re heading right back to where we were.  It’s very odd for the market to forget, so quickly, the risks that just materialized a month earlier.

Anyway, I’m just typing this and CNBC is interviewing a portfolio manager who just said “we don’t care about high valuations because of the opportunities ahead.”  I probably didn’t get the quote exactly right but I got the gist of it.

This attitude is not an isolated one.  The tape tells us that this thought process is widespread and dominating the tape at the moment.

I can’t claim that this thinking is wrong.  Maybe there are awesome opportunities in the future.  Certainly anyone that cared about valuation would’ve stayed away from Amazon for the last 20 years, and would’ve been wrong.

I am worried at the looseness of these justifications.  We have the amorphous rationale of opportunity justifying historically elevated valuations.

It smells of willful ignorance and I think it’s trouble.

See you tomorrow.