The Zigmont Report (Daily Market Recap for 9/27/17)

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

Tax reform.  US equities rallied today and a big reason for the lift was the release of the tax reform plan by the Trump administration.  Who knows what actually happens though.  If this reform even goes into effect, it’ll change along the way.  What will actually pop out the other side when Washington D.C. is done with it?

That’s a question I can’t answer but the market is speculating that *some* positive change will make it through and those changes will boost earnings.

I don’t think that’s unreasonable but the devil is in the details.  CNBC was spit-balling some numbers and suggesting that the 2018 earnings for the S&P 500 could go up $8 if the tax plan gets implemented.

I track bottoms-up estimates and right now the ’18 estimate is $145.  If the earnings go up to $153, that’s obviously a positive.  I don’t know if it’s worth a strong rally but at least there’s a rhyme to the reason in the market.

I’ve been valuation sensitive for two-ish years so if the above numbers hold, the ’18 PE goes from 17.3 to 16.4.  That doesn’t change my mind with respect to valuations, though it helps.

The bottom line is simply this, US equities expressed some bullishness today.  Tax reform, one might argue, has been an anticipated positive since the Presidential election, but with a look at some of the details today, investors felt an extra kick of optimism.

That optimism is now officially in the market.  So if the tax plan takes some hits, the market *should* reflect that.  Vice versa applies too.  It’s doubtful that the D.C. process improves the reform but ya never know.

On the tax reform issue, there is no longer an amorphous tax plan coming sometime in the future.  We now have specifics and a timeline.  Hiccups and victories along the way should clearly influence the market.  Good news will be good news and bad news will be bad news, when it comes to tax reform headlines.

There’s a new source of volatility in town.

See you tomorrow,