The Zigmont Report (Daily Market Recap for 11/2/17)

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

The dip was bought.  US equities were up small until 10 AM.  At that point a large volume of futures were sold in a few tight windows and the tape broke as a result.  The S&P was off around 12 handles and there was no news item to point to.  For the rest of the day, the tape climbed and the intraday dip-buyers earned their, I don’t know, 200th consecutive win.

In terms of newsworthy items today, we had a few:

  1. The Bank of England raised rates 25 bps for the first time in 10 years
  2. Totally expected but a sign of normalization spreading
  3. Trump nominated Jay Powell to be the next Fed Chairman
  4. Totally expected, he’s expected to be a dove but nobody knows
  5. The GOP released the details of the tax reform
  6. Lots of details, appears to be a reasonable set of reforms
  7. Not as ambitious as many hoped
  8. Time to begin handicapping what changes to get it passed

That’s a pretty meaty new day.  The tape was very calm throughout.  This is par for the course.  What would stir the investors’ pot?  I don’t know.

Anyway, let’s revisit earnings season and call it a day.

2017 Q3 Earnings season:

73% of the S&P 500 reporting (+22% vs 10/27 data)

Surprise vs Estimates:

  • Sales: +0.8% (-0.2% vs 10/27 data)
  • Earnings: +5.0% (+0.7% vs 10/27 data)

Growth vs Prior (Y/Y):

  • Sales: +5.6% (-0.7% vs 10/27 data)
  • Earnings: +7.5% (+0.9% vs 10/27 data)

If we just focus on the growth numbers, we can see solid revenue growth and OK earnings growth.  It makes sense that these results are good enough to keep the equity party going….plus there’s the narrative that earnings will accelerate to double-digits in the next two years.

The tomorrow, tomorrow, not today earnings story has been told for 4-5 years I think… investors haven’t gotten fed up with the pushing off the growth either.  This season’s results don’t force the market to throw in the towel on the hope either.

My point here is that for the last 4 years, the market expected double-digit earnings to materialize, in the following year.  This dynamic continues and the market has not run out of patience.  This quarter’s earnings season doesn’t force the market to rethink things.

So all systems go.  The bullish sentiment is unaffected.  Bears have to wait for next earnings season for a chance at a season where earnings disappointments instigate a bear market.

Until then, the bears only have bolt-from-the-blue catalysts on their side.

See you tomorrow,