The Zigmont Report (Daily Market Recap for 3/5/18)

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

A weekend to heal.  Things were quiet over the weekend and overseas markets weren’t very rattled when they traded.  Asia was off some but Europe was slightly up.  Our premarkets were slightly weak but without new news and without a nasty open, the dip-buyers made their moves and turned the tape upwards from 10 AM on.  The tariff worries and trade-war concerns are quickly being brushed aside.  I don’t know think that’s actually wise but it makes sense for the moment because the dip-buying reflex isn’t going to stop without a major change in the investing landscape.  Quiet (in terms of news) remains an opportunity for the bulls as they will increase their confidence that the world hasn’t really changed.  To that end, once the tape developed some bullish momentum in the morning, investors jumped on board to chase for the rest of the day.  The all-clear signal came by lunch and investors rushed into the pool.

Interestingly, while this was happening, US treasury yields backed up.  In the morning, yields were down, in what looked like a simple (but small) flight to safety play.  As the stock market climbed, bonds sold off.  Again, this looks like a plain-vanilla risk-on play.  The *interesting* part of all this is that yields ended up higher today…but equities didn’t care.  Where have we seen this story before?  Rates are gonna matter and the rates up here don’t help the equity bulls.

What’s going to get us to collectively pay attention to yields again?  It might be the February labor data on Wednesday and Friday.  The FOMC meets on March 21st and is widely expected to hike the Fed Funds Target rate 25 bips.  The ADP data Wed (200k est vs 234k prior) and the nonfarm payrolls data Friday (200k est vs 200k prior) will refocus all markets on the Fed, inflation, and rates.  The March hike is in the bag.  The real question is how likely might 4 hikes this year be?  Labor data is the first big input into figuring out what the Fed will do.

Today feels very much like a relief rally.  Whether correct or not, markets seemed to express confidence that the tariff worries of last week were overblown.  Rates etc. have to come back into the fore and I think that means more tough sledding for bulls.

We shall see.

I think we should look ahead to Wednesday & Friday even though the market feels even more nearsighted.

See you tomorrow,