The Zigmont Report (Daily Market Recap for 6/13/18)

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

FYI, I’ll be out of the office tomorrow so no Recap Thursday.  Will be back Friday though.

Surprisingly benign.  Today was FOMC day and the Fed surprised the market.  They delivered the expected 25 bip hike but they also edited their statement substantially.  They stripped out a lot of accommodative language and are molding the statement into something that doesn’t assume the US economy needs special handling.  The dot plot of Fed members estimates for future interest rates also shifted significantly.  There are now 7 members who expect 2 more hikes this year and there are 5 that expect 1 more.

This is hawkish.  The Fed is leaning towards a 4-hike year in 2018, which is a significant departure from the last couple years of guidance.  This is not Armageddon however.  The Fed has always said that the economic conditions would steer their hiking plan.

It just so happens that the economic data is coming in strongly enough to get the Fed to *consider* applying the brakes a little more forcefully in the future.

So… this should be a big deal.  The market totally took it in stride though.

This is a very interesting reaction by the market and implies that the market thinks that the Fed’s approach is a good one.  I personally agree.  I think the Fed is doing things appropriately.

I don’t agree with the equity market that prices shouldn’t be reacting more significantly however.  That’s not the Fed’s responsibility however.  That’s my old valuation bugaboo.  I see higher rates and I see rich valuations and me no likey.

I’m (sadly) not in charge of the markets though so I just have to manage my views given the fact that the bulls are essentially in charge.  The scares of February and March are forgotten and bulls are acting as though it’s 2016 & 2017 again.

It’s going to take nasty catalyst to rattle their mindset.  I can’t see one on the horizon either.  That means only a bolt from the blue can deter them.

See you Friday,