The Zigmont Report (Daily Market Recap for 9/14/17)

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

Like yesterday.  US equities barely did anything today.  Capital flow was normal, printing 102% today.  The intraday movement was quite small today too.  The high-low range for the S&P 500 was 28 bps today.  Usually it’s 1.2%.  It may not seem like the market was that quiet but today was about a 1 in 150 type of occurrence.  Nothing to jump up and down about but fairly rare.

Certainly not something I would expect with normal capital flow, a mid-September time frame, a hawkish development from the Bank of England, and yet another North Korean headline.

When it comes to risk, today’s another great opportunity to pose the familiar questions:

Are investors complacent?  Are they willfully negligent?  Are they actually correct?

We’ll only know the answer in hindsight but boy oh boy is it hard for me to think that the market has correctly handicapped the risk of the future.  Are we really at a point in time where the risk of investing in US equities should be close to the lowest in history?

I can’t say confidently *where* US equity risk *should* be pricing but it sure seems to me that we should be closer to historical norms than historical calms.

But hey, every volatility buyer for the last two years said the same thing and they were clobbered.  The actual path of US equities has been very calm and the past strongly influences perceptions of the future.  People extrapolate a continuation of things/data.  They very rarely model/predict a turn or jump.

In US equities, we’re going to be calm, very calm, until something surprises the hell out of all of us.

So now I’m more confident that the market will not gradually return to a *normal* volatility regime (prior thesis).  We’re going to have to be shocked into it.

Not a comforting thought… but who knows when it happens?  Could be years away.

See you tomorrow,