FintekNews is pleased to launch our new feature “The Zigmont Report (Daily Market Recap)” today. We will publish this right after the market close, and each feature will appear the following morning on our M/W/F newsletter as well.

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 shortly after the market close.


The opinions expressed below are my own and do not necessarily represent those of Harvest Volatility Management, LLC.

Crude. Crude oil continues to fall and the energy sector suffers as a result. The energy sector fell about 1.6% today and it weighed down the broader market. Year to date, energy is down 13%. The entire S&P is up 8%. The best performing sector is Tech and it is up 18%.

That’s a big dispersion in sector performance.

It isn’t about to change either…at least it won’t change because energy starts zooming. Oil prices cannot climb high enough, for long enough, to kick strong growth back into the energy sector’s earnings. What I’m trying to say is that energy is now definitively value and it has no plausible hope of becoming growth anytime soon.

So let’s go down this path then. Value has been underperforming growth since ’09. It’s going to take a recession and/or bear market for that to reverse for any meaningful period. So tech is going to drop to meet up with energy. Energy will not climb to catch up. You can say the same thing about telecom by the way.

What does this mean?

It means the market is now concentrating performance. The broader market cannot/will not lift as sector performance rotates. Energy will not take over tech to keep the party going. Telecom will not take over. Financials will not take over. Only growth sectors can keep the party going. That leaves tech, health care, consumer discretionary, and *

maybe

* industrials to keep things climbing.

Realistically, the market needs tech to keep going.

It’s a tech bull market at this point. When the tech bull market ends, the US equity bull market will end.

We are at the end stages of the race between performance-chasing and fundamental results. The race can continue for a couple years so I’m not sounding the bear market warning alarm, but… the race is on.

Money will chase tech. Valuations will stretch further. Earnings expectations (for tech) will climb higher. Results will (eventually) disappoint. The correction will ensue.

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