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
New narrative. Something interesting happened today! There was no gee-whiz news headline to blame for today’s weakness. The broader market simply sold off, slowly, from the open to lunch. We bottomed with the S&P off 24 handles (93 bps). From there, the market repaired about half the day’s damage – completely unsurprising. Capital flow was quite heavy at 129%.
So what’s the new narrative?
Today, for whatever reason, investors decided to worry about interest rates – specifically whether the bond bull market is over or not. The yield curve didn’t shift up a ton today so we can’t point to treasuries as an obvious trigger. Yields were up around 1 bip across the curve…that’s tiny. That’s not something that would force equity investors to turn their attention to rates.
And yet, that’s what’s going on. How fast are rates going to climb? What are the implications of higher rates? Those are the questions bouncing around CNBC, trading desks, and market strategist circles.
Honestly, this focus on rates could have (should have) happened anytime in the last 6 months… but it’s jumped to the fore today. I can’t explain why. I can only tell you that now the market cares and *that* is a significant narrative change.
Another smaller narrative change is also taking place on the earnings season front. The season as a whole is taking some hits. The season isn’t as great as investors hoped. The earnings results, specifically the earnings growth, is being labeled as disappointing here and there. Here’s something a little interesting:
46 S&P 500 firms announced from last night’s close to present.
- 8 disappointed on earnings
- 28 traded lower today
- median performance of those 46 stocks today was -1.3% (vs -0.5% for the index)
US equities are experiencing a narrative flux right now. In the last year, any and all narrative fluxes were quickly brushed aside and the bulls rolled the tape higher. The price action forced the narrative to return to the bullish economic Goldilocks story.
Maybe that happens again tomorrow/soon.
Or maybe not.
The only thing I can say for the moment is that the relentlessly bullish feel of the market has just hit a snag.