The Zigmont Report (Recap for 2/14/19)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B 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.

Very peculiar.  Stock futures were up again today, as per usual.  Then terrible retail sales data came out.  December advanced retail sales were -1.2% vs +0.1% est & +0.1% prior revised from +0.2%.  Futures took a hit right away and the S&P opened 10 handles lower than yesterday’s close.  The market bottomed before 10 AM, down about 20 handles.  Then the dip-buyers went to work and took the S&P all the way into positive territory by lunch.  We gave back 7 handles in the last 30 minutes of trading.  All this happened on very light capital flow of 87%.  Govie notes and bonds rallied across the curve on the retails sales release also.

During the day, the Atlanta Fed used the sales data to revised their ’18 Q4 GDP estimate to 1.5% from 2.7%.

Also during the day Amazon announced that they were abandoning their plans to move a second headquarters into Long Island City.  They will not attempt to relocate the facility but will simply not go ahead with that growth plan.

So here’s what I find peculiar.

The slowing growth scenario is now showing up unambiguously.  The risk of recession is perking up.  The best estimator of GDP, the Atlanta Fed, just chopped 1.2% off of their fourth quarter estimate.  That’s huge.  And the number is below 2% now.  The Amazon news is anecdotal evidence that large-scale expansion plans are tentative and can easily change for the worse.

None of this is a reason to buy.  All of it is a reason to sell.  And yet the market shook off all this news today.  Maybe equity investors thought the non-2nd-government shutdown was bullish enough to override the other things?

I think that’s nuts.

We don’t have to be on the cusp of a recession or a market crash, but we’re not in a go-go growth environment anymore.  2015, ’16, and ’17 are long behind us.  Paying higher valuation multiples in the face of today’s warning signs is absurd.

We’ll just have to see how things play out.  See you tomorrow.