The Zigmont Report (Daily Market Recap for 5/10/18)

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

Tape-chasing?  The only meaty news of the day was the tame CPI print before the open.  CPI always comes in a bunch of varieties, sliced in many ways.  The monthly ex food and energy slice is considered the most significant and it was 0.1% vs 0.2% estimated and 0.2% prior.

That’s good.  We don’t need to worry about inflation (in the near term).  Equity futures moved from flat to up small on the release.  Treasuries rallied small too.  Maybe investors can now argue that the Fed doesn’t have to hike 4 total times this year.  I think that argument has merit but this softer inflation number  *won’t* derail the 3-hikes-per-year plan.

So the point is that this inflation data is a small deal.  It’s a little bit helpful to the bulls and it pushes down the rate-hiking path a little.  Equities and bonds reflected that reality shortly after the release too but equities kept the party going almost all day.

Here’s the S&P’s price action for the day:

This looks very monkey-see, monkey-do to me.  Equities have rallied almost 5% in 7 trading sessions and it’s  dollars to donuts that sidelined dip-buyers were jolted by a fear of missing out, something they haven’t felt since late January.

The thing that makes this confusing is that the capital flow remains very light.  Today the flow was 87%.

Where is the big capital?  Why is the size money inactive?

I don’t have a good answer but the smaller pool of active capital that has been moving through markets has been bullishly inclined.  That for certain.

When will those little guys hit the wall?  When will the big pools of capital start pushing their palms out and yelling SOLD?

I don’t know but I think that’s more likely than big money jumping on the bandwagon and lifting offers in size.

See you tomorrow,