The Zigmont Report (Daily Market Recap for 9/25/18)

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.

Tomorrow’s the day.  Today was another catalyst-free day of trading.  We opened up small and wandered around to close almost flat.  Capital flow was a bit light at 96%.  President Trump addressed the UN General Assembly and markets watched, but they didn’t react much, there was some selling during the speech but nothing too significant.  Interest rates climbed small across the curve.

Today was the last day of waiting.  The Fed will announce its next rate decision (25 bip hike expected) tomorrow at 2 PM.  The press conference is half an hour later.

The hike is a fait accompli.  The guidance is the issue.  The Street anticipates a fourth 25 bip hike in December (75% probability in the Fed Funds futures market).  The market will also look for clues to the

Terminal rate of the Fed.  The last time the Fed released their forecasts….

  • the long-run Fed Funds rate was in the 2.3%-3.5% range
  • the 2020 Fed Funds was in the 1.9%-4.1% range

The full ranges are a little sloppy so let’s look at the central tendencies of the members…

  • long-run Fed Funds: 2.8%-3.0%
  • 2020 Fed Funds: 3.1%-3.6%

So the Fed expects to *overhike* buy about 50 basis points (2 hikes) on the way to normalization and easing at some point thereafter.

These were the Fed expectations in June.  How they change tomorrow will be key.

See you then,