The Zigmont Report (Daily Market Recap for 1/4/18)

Mike Zigmont

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

SOGU (“so-goo”).  Stocks Only Go Up.  That’s what we used to say in 2012 and 2013.  Well, I’m resurrecting it because it has been true since early 2016 and it looks like it’s an infallible law of physics in 2018.

Last year was remarkable for the bulls because it was the first year ever, where the total return of the S&P was positive every month.  No down months for the whole year!

That’s child’s play though because 2018’s market wants to go up every day.  So far so good, too.

Overseas markets were up strong because the US was up strong yesterday… and we were up nicely in the premarket because overseas markets were up strong.  Nothing to see here…. [eye roll]

Anyway, the news of the day was pretty uninteresting again.  The light news we had certainly didn’t strike me as something that should trigger a new burst higher.  The data that struck me as meaningful was the December ADP data (250k vs 240k est & 247k prior revised from 245k).

That’s a robust, but expected, labor number.  Nonfarm payrolls data (190k est vs 228k prior) releases tomorrow.  The ADP number suggests a positive NFP surprise.  With the labor market cooking, Fed aggressiveness should be at the forefront of investors’ minds.  Yet that was not the case today.

  • The Fed Funds futures market has a near-zero expectation for a Fed hike on Jan 31 but an 88% chance of a hike on Mar 21.
  • That market expects 2-3 hike by year end.
  • The Fed’s current plan is 3 hikes per year
  • A 4-hike year is only priced with an 11% chance.

I’m not going to second-guess the Fed Funds futures market but setting aside the fact that a more-aggressive Fed *should* be discussed….the equity market seems to think equities are immune to interest rate hikes.

Something I’m not hearing from anyone is that *maybe* the destination of the Fed Funds rate isn’t ultimately 3%.  What if the destination is 4% or 5%?  Stocks (and bonds for that matter) aren’t even toying with that idea.

I don’t know what’s going on in the collective mind of investors.  We are not experiencing stock euphoria but it seems like reckless stock optimism.

See you tomorrow, stay safe in the bomb cyclone.