The Zigmont Report (Daily Market Recap for 8/1/18)

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.

Stick to the plan.  The FOMC decision came through with no changes to the Fed Funds Target Rate.  This was widely expected.  The language changes to the statement they released were so trivial that they aren’t worth mentioning.  The S&P fell a little on the release.  Who knows what the computers thought they saw in the text.  The S&P recovered that dip quickly and finished about 2 points higher than the pre-release levels.  Yawn.

It is notable that the far larger moves in US equities happened during the trading *before* the FOMC decision, than after.  That is notable only because it’s so unusual.

My interpretation is that the Fed is following their well-telegraphed plan and the market remains in agreement with it.  The economy is strengthening, inflation is well behaved, and monetary policy normalization should proceed as planned.

Nothing to see here.

Whether you’re a bear or a bull, I would argue that our current normalization path and market reaction is ideal.  If the Fed were in the middle of an obvious policy mistake, the markets would be VOLATILE and the economy would be at risk.  As it stands, we all appear to be forecasting similarly and accurately.  As long as that continues, Fed decisions aren’t going to rock any boats.

The next actual hike in rates is expected at the next FOMC meeting on Sep 26.  The market is pricing an 80% probability of that.  That would be the third hike of the year.

Whether or not we get a *fourth* hike, come December (60% chance currently), is the question the market is asking *but not worried about.*  The September statement and press conference will go a long way towards telegraphing the plan for December and firming up market expectations.

The next item on the horizon is July nonfarm payrolls data (+192k est vs +213k prior).

I expect the number to surprise to the upside but not enough to upset the apple cart.

See you tomorrow,