The Zigmont Report (Daily Market Recap for 3/20/18)

Mike Zigmont

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

Spring is here.  Not that the changing seasons matter to markets, but it’s about as interesting as anything else that happened today.  The tale of the day, to me, is simply that the dip-buyers did what they do.  Yesterday was quite a selloff and the news today didn’t appear to make the investing landscape worse…so the bulls came in, as one would expect.  They didn’t have a cakewalk though.  The morning was back and forth, starting with a modest gain at the open but the tape was slightly down by lunch.  Around 2 PM the bulls finally dominated and the S&P climbed steadily for an hour.  Bears took some gains back in the final hour.  We printed a small gain.  Capital flow was very light at 85% so regardless of how the S&P moved today, there wasn’t much money driving it around.

Today’s move is going to be quickly forgotten because tomorrow is the FOMC decision.  The street expects a 25 bip hike with near unanimity.  The big mystery is what kind of forward guidance the Fed will give.  The two clues to the future hiking-path will be:

  1. The dot-plot
  2. Language in the statement

The Fed has guided for years about the pace of normalization.  3 hikes per year unless something interrupts it.  The Fed never suggested a faster pace *unless* inflation were to perk up.  I don’t think inflation is perking up but we have to see what the Fed thinks tomorrow.  If the Fed suggests that it will continue the 3 hikes per year pace, I expect equity bulls to take over the tape.  I don’t know how far they can push things but they’ll win the day.

If the Fed suggests 4 hikes this year…. It’ll be a way different day.

We shall see.  The decision comes out at 2 PM tomorrow.

See you then,