The Zigmont Report (Daily Market Recap for 10/4/17)

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

Warming up.  Today was boring.  Stocks went up (7th consecutive session).  Capital flow was a touch light at 94%.  News was a snooze.

It’s hard work watching paint dry.

Here’s the data we should file in the back of our minds.

  • Sep ADP (135k vs 135 est & 228k prior revised from 237k)

o   Bullseye
o   Hurricane skewed number down, would’ve been about 185k w/o weather distortions

  • Significant job creation
  • Sep ISM non-mfg (59.8 vs 55.5 est & 55.3 prior)

o   Big surprise, highest print since ‘05

  • Pepsico results (small beat on earnings, small disappointment on revenues)

o   Not great, not bad

The economy is heating up and there doesn’t appear to be a cloud in the sky.  The Fed has oodles of reasons now to feather the brake but the market isn’t worried.  December hike probabilities remain at 70% in the Fed Funds futures markets.

I’m surprised the probability isn’t higher but December 13th might be far enough away to merit 70%.  Interestingly the probability of a Nov 1st hike is almost zero.  That big difference suggests (to me) that the market isn’t discounting possibilities of recession or *some* negative event… but simply discounting the ability of the Fed to follow its advertised plan.

I don’t know whether that’s right or wrong or good or bad.  It’s very different is all I know.  It used to be that ISM levels above 50 were brake lights for the Fed.  That’s not the state of the world anymore.

What’s the Fed gonna do? (translation: how’s the Fed going to surprise the market?)

That question used to move markets.

It doesn’t seem that way today.  Very strange.