The Zigmont Report (Daily Market Recap for 7/20/18)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $12B 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

2 consecutive drops.  It’s a Festivus Miracle for the bears.  For the first time in July, the S&P fell for two sessions in a row.  Yesterday it dropped 11 points.  Today it dropped about 2.  Lookout below!

The news of the day was uninteresting (to the markets) although it contained some things that we should note.

  • Trump is threatening to apply tariffs to *ALL* goods/services imported from China.  That’s about $500 billion of annual trade.  China’s response at this point is unknown but I’ll give you a hint, it won’t be to remove the tariffs it already has on US exports.
  • Trump is making noises about not liking what the Fed is doing.
    1. This introduces the appearance of the President influencing the Fed (officially an independent office established by Congress).
    2. This is unusual in recent history but not unprecedented in the history of the Fed.
    3. It is a negative development but markets are currently dismissing it as Trump-just-being-Trump
  • Trump is talking the Dollar down and China is no longer attempting to prevent its currency from weakening.  These are opposing forces… who knows who wins but a race-to-the-bottom in terms of currency devaluations would be bad.

All three of these things are different facets of the same big issue: the trade war/negotiation.

Since the market continues to think that the trade war won’t be material, all of these new developments were dismissed by investors (even though they all point in the same *worsening* direction).

We’ve covered this territory before.  I think the markets are being way too optimistic but they’re not going to worry until they decide to worry.  Good luck figuring out when and where that happens.

If we simply look at today’s US equity action, it was quiet.  The intraday moves were small.  The MSFT beats didn’t spur the bulls into broader action although the stock itself climbed almost 2% today.  Capital flow was 95%.  Today was expiration for monthly option series though.  Usual flows for these days are 120-140%.  So today wasn’t just light, it was aberrant.

I don’t know if that means anything but it is odd.  Where are the flows?  Why are investors not making moves?

If you have a theory, throw it at me.

Looking ahead to Monday, I’m not seeing much different than what we’ve just experienced.  Maybe the Google earnings Monday evening spur investor action… but maybe not.  We’ve been swimming in investor apathy for a while and even earnings season might not change it.

If that’s true, it bodes well for quiet trading.  Probably no big moves on the horizon.

Famous last words, no?

Have a great weekend, see you Monday