The Zigmont Report (Daily Market Recap for 2/14/18)

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

Old habits die hard.  The habit is dip-buying.  This morning’s January CPI (ex food & energy) data was a little hot (0.3% vs 0.2% est & 0.2% prior revised from 0.3%).  S&P futures were about +10 handles before the release and they plunged within seconds to -30 handles.  Treasuries sold off fast too.  The inflation worries kicked in hard and fast.

At the same time, advance retail sales data (-0.3% vs 0.2% est & 0.0% prior revised from 0.4%) disappointed.  A little later, the Atlanta Fed dropped their Q1 GDP estimate (3.2% from 4.0%).  These things were pretty much ignored though.  Hmmmm.

Anywho, the initial futures dump was probably overzealous and once the computers did their thing, people started buying.  The buying never stopped and the day ended up being a huge winner for the bulls.  Buy the dip!

I think there’s some silliness at work out there today and I think we should be cautious.  In the last few sessions, we traded in a news vacuum and only had the charts to guide us.  OK.  That’s all one can do without new information.

Today we had new, meaningful data but the market continued to trade off the charts.  The dip-buyers are acting as if there’s no change to the investing landscape.  US treasuries are making new yield highs but the bulls are ignoring it.  I say uh-oh.

The CPI data was a tad off so a 40 handle drop isn’t a reasonable reaction… but neither is a 40 handle rally!  Interest rates are *rising* and the economic future may not be as strong as we believed yesterday.

The tape ramped nonetheless.

I think a lot of equity investors are pumping money into equities and are *still* indifferent to the fundamentals.  That behavior worked for the last two years but the world isn’t the same anymore.  Fed hikes, higher interest rates, valuations, etc., now matter.  They didn’t in 2017 but that was then, this is now.

The bulls and dip-buyers did their thing.  They ran into the breach and kept things from getting obscene.

But now they’ve forgotten what caused the correction and are trying to go right back to the way things were.

That’s an impossibility.  I’d wish them good luck but they wouldn’t know what to do with it if they got some.

The below chart shows how Treasury yields changed over the last four years.  FYI the curve shifted up almost 10 bips today.  Rates matter, even to equities.

See you tomorrow,