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
Strong like bull. Equity markets rallied nicely today. Part of this is due to this morning’s robust nonfarm payrolls data (223k vs 190k est & 159k prior revised from 164k). I think part of this is also just due to the back-and-forth nature of the market recently. Here’s 10 days’ worth of S&P movement.
The treasury market sold off across the curve today also. Both the stock and bond market interpreted the strong labor data as a sign that the US economy was ramping up and that the Fed was going to get more aggressive. I don’t know about the Fed aggressive interpretation though…the Fed has clearly said they’re going to follow the 3-hike-per-year-plan unless things get really crazy.
Maybe the bond market is just pricing in a little bit of potential crazy though. To be fair, the Atlanta Fed published their latest GDP estimate this morning. They project a 4.8% growth rate for Q2 2018.
That’s a lot of growth so maybe there are some outlier scenarios where the Fed has to deviate from the 3-a-year-plan.
The only question I have to make is that if the bond market is projecting a more aggressive Fed because of a stronger economy, why is the equity market not discounting a more aggressive Fed?
Today’s not the first time the Treasury market and the equity market reacted differently to the same news.
It’s not a big deal for a single session. If the markets continue to diverge for a while, there will have to be a reckoning. That could be unpleasant.
At the moment it’s just a curiosity.
Have a great weekend, see youMonday
-Mike
