The Zigmont Report (Daily Market Recap for 5/31/18)

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

Yo-yo.  Risk-off was the flavor of the action today.  Italy wasn’t the worry though.  The market went south on the news that the US was going to re-implement the steel and aluminum tariffs again.  Canada responded with retaliatory tariffs later in the day.  And here we go….

It’s not a war (yet).  It’s a fight.  The nature of it is tit-for-tat and it’s very volatile because some days it’s on and some days it’s in a time out.

Maybe I’m naïve to the sausage-making-process of trade negotiations but this strikes me as ridiculous.  “We’re implementing tariffs!”

“Now we’re suspending the tariffs!”

“Now we’re implementing tariffs!”

How many more back-and-forths will we have to endure?  This seems like a child’s game of Red Rover instead of a trade agreement negotiation.  Maybe I am just a silly Billy that doesn’t understand the art of the deal.

Anywho, the point is that today the market was fearful (a little bit).  Maybe tomorrow we get a little bit optimistic.  This yo-yo environment is not going to change anytime soon.

We are at the *beginning* of this phase of trading.  Uncertainty is growing slowly.  What’s noteworthy about increasing uncertainty is that even unrelated risks connect.  Italian debt and US tariffs and North Korean talks and US justice department investigations don’t have meaningful economic interconnections….

But they get investors thinking…. Thinking about what else might be out there, lurking.  They serve to tilt investor thought towards paranoia…towards what might go wrong instead of what might go right.

That attitude matters and it shapes the narrative of the markets.

And barring a big, obvious catalyst, it won’t go away quickly.

So my point is that we’re in for more chop.  Don’t believe the tape.  There is no trend without a big, obvious catalyst to initiate it.

And if you have to ask if we just had the catalyst…. We didn’t.

See you tomorrow, nonfarm payrolls (190k est vs 164k prior) will be the data du jour.  It shouldn’t really matter but maybe in this environment, it spurs some over reactions.