The Zigmont Report (Daily Market Recap for 9/10/18)

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.

Nice and quiet.  The observance of Rosh Hashanah resulted in quiet US markets and light flow (89%).  There wasn’t much news breaking today either.  This all resulted in a sleepy but little rally.  After last week’s drop, it’s not surprising that the dip-buyers got a win.  It’s small but it’s still a win for the bulls that halts the brief bearish stretch of last week.

We’re left waiting for a material news catalyst and normal/elevated capital flows to help us kick off a trend.

I don’t think there’s much in the near term that will accomplish that however.

I think we’re waiting for the FOMC decision on September 26th.  That’s the *foreseeable* event that has the potential to tilt the investing landscape.  The Fed is almost universally expected to increase the Fed Funds Target Rate 25 basis points from the 1.75-2.00% range up to the 2.00-2.25% range.

That move, isn’t what might shake up the markets.  It’s the hints & guidance that we learn from the official statement and the press conference that afternoon.  The market is expecting the Fed to hike another time, probably in December.  Current prices imply a 70% probability of that 4th hike.

The market is expecting a slightly hawkish tack.  If it doesn’t get it, I expect bond vigilantes to scream bloody murder that the Fed is falling behind the curve.  If the Fed is overly aggressive, I expect equity bulls to scream about the Fed killing the economy/market.

There is a narrow path that the Fed needs to walk to keep everything going.

The Fed has perfectly walked that path since normalization began in 2015.

I don’t want to bet against them and I don’t necessarily want to bet on them.  I think it’s best to recognize that there is a bonafide uncertainty ahead of us.

See you tomorrow,