The Zigmont Report (Daily Market Recap for 4/4/18)

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

Impressive….most impressive.  The premarket was a disaster as China announced a $50 billion set of retaliatory tariffs.  S&P futures went from down 10 to down 35 immediately.  Within an hour, those futures were down 53.  The markets were rightly worried that we were witnessing the beginning of a hot trade war.

Hat’s off to the dip buyers though because they started turning futures at 6 AM and didn’t stop until the close of regular trading.  In the morning, Director of the National Economic Council, Larry Kudlow, said that these tariffs were probably not going to get implemented.  The market took solace in those words and from there momentum simply built to the upside.

Is the market too optimistic that China and the US will resolve their trade issues without a mess?

I don’t know.  I do know that the market is *expecting* that these big Chinese/American announcements are more about negotiation than implementation.  I hope that’s true but that is a risky presumption.  *Don’t make the mistake that they are empty threats!*  That is certainly not true.  They are real threats, which makes them dangerous, but they are threats that are intended to manipulate the other party.  If the other party plays ball, the threats don’t need to be carried out.

The good news is that we have time.  There are months to go before a lot of these tariffs go into effect…so there’s room to negotiate before then.  If negotiations go well, everything will be hunky dory.  If not, uh-oh.

While we wait, the tape is only a reflection of the market’s attitude towards the trade issue at the moment.  Today, the market decided to see the glass as half-full.  It won’t take much to get it to see the half-empty version at some point.

So before the issue is officially closed/concluded… we are going to be very volatile.  Perceptions will swing things a bunch of times along the way.

Don’t get sucked in, I say.  Each day brings a big move that seems very convincing.  One day, we’re entering a bear market.  One day, we’re out of the woods.

The truth is we’re in limbo.

See you tomorrow,