The Zigmont Report (Daily Market Recap for 7/27/18)

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 and do not necessarily represent those of Harvest Volatility Management, LLC.

Fickle.  The market acted oddly today.  Let’s just jump in.

Usually, no news (or trivial news) is the bulls’ ally.  Not today.

Usually, capital flow is light (below 100%).  Today it was 115%.

Usually, growth news is embraced.  Today the Q2 GDP number printed 4.1% vs 4.2% est & 2.2% prior revised from 2.0%

Usually, tech stocks are embraced.  Today they were the worst performers.

So I hope the point is made.  Today was Opposite Day.

One day does not make a trend.  Investors could very easily use the weekend to recharge their bullish batteries and take advantage of the latest dip in the tape.  Or not.

We are witnessing a blip in the sentiment of the market.  It is a 50/50 proposition whether this is the beginning of something bigger or just another speedbump for the bulls.

We all know that trees don’t grow to the sky.  That mean equities must crash though.  It doesn’t even require an official correction.  I wonder if valuation is sneaking into the narrative of the market.  The growth is good/excellent (and the future looks bright) but prices have run a lot and it’s reasonable to argue that valuations are stretched.

One potential measurement of this change in perception is earnings season.  We already know that the management/analyst game is rigged.  The surprises are through the roof…best ever, so that’s not the way to measure what the market actually thinks….  Here’s how the *stocks themselves* have reacted.

Of the 245 S&P 500 constituents that have already reported,

56% outperformed the index in the session after their results

44% underperformed

The median relative performance was +0.6% and the average was 0.5%.

Like most batches of stats, this can be interpreted both bullishly and bearishly.  Here’s what I *think* I see.

Investors are reacting positively to the season.  The latest results are delivering modest outperformance for the company versus the market and the split is modestly in favor of reporting companies.  That’s a bullish earnings season.  The season is not as amazing as the analyst narrative suggests.  The market is *not* being blown away by the results.  The market is also *not* in a fragile state with excessive expectations.

So despite my concern about valuations…. The stock price results suggest investors are about properly positioned with their expectations.  There’s a good balance out there.

That can obviously change.  That’s what today *could* be about.  Or investors could just be fickle.

Have a great weekend, see you Monday,