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.
Chillax. CPI data released this morning and it was less than expected across the board. Inflation worriers are able to breathe again. Equity futures liked the data and the premarket went from up a little to up a modest amount. The tape wandered around during the day but there wasn’t much news to digest so really markets were influenced by the 8:30 AM data. While the equity market interpreted the data as bullish, the bond market did not. Interestingly, yields climbed across the curve, although the increases were small. The implied probability of a 4th Fed-hike in December dropped a bit and it’s now at 75%.
The equity market thinks the party can/will continue. The bond market isn’t on the same page.
We’ve seen situations in the past year where the bond market and the equity market have interpreted events in the opposite way. Bond markets are usually assumed to be smart and equity markets dumb so the Street tends to trust the bond market…however the past year has turned that aphorism on its head.
The stock market has been unflappably bullish while the bond market has had bouts of doubt. If we look honestly at the recent track record, stocks were right.
I don’t know if that means we should hitch our wagons to the equity market’s interpretation of things for a while or not. I still get the heebie-jeebies when it comes to equity market valuations but I’m unwilling to say that the equity market is flat-out wrong.
We’re still waiting for the FOMC decision on Sep 26th and that is going to be the big kahuna in terms of catalysts… but while we wait, it looks like stock market investors want to speculate that the Goldilocks scenario is going to play out. So up we go.
Dip-buyers are going to look at the chart and declare victory again. I wonder how much momentum they can generate as a result.
Anyway, the economic data tomorrow will be of some importance as it will shape the existing growth narratives. We get the following data:
- retails sales
- import & export prices
- industrial production & capacity utilization
- consumer sentiment
I doubt we see outliers but the combined results should tell us whether the economic porridge is looking too hot, too cold, or just right.
See you tomorrow,