The Zigmont Report (Daily Market Recap for 9/5/17)

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 shortly after the market close.

The opinions expressed below are my own

Wakey wakey.  Equity markets woke up from their summer slumber today.  Capital flow was 114%, the S&P dropped about 20 handles, and implied volatilities climbed across the curve.  North Korean tensions appear to be the root cause of these jitters and the risk-off reaction in financial markets is alive and well again.

Given investors’ proclivities to dismiss North Korean dangers quickly, perhaps today’s selloff contains more reasons than just North Korea.  Perhaps the cost of hurricane Harvey is weighing down financials and the broader market… last week the market thought the cost wouldn’t be so great.  Now it’s looking like it might be the costliest disaster in US history.  That’s a big deal and not just for the property & casualty insurers… but just to highlight the point, here’s how the P&C insurers have been trading lately.

Sticking with hurricanes, Irma is now on its way and Florida is in danger.  With Harvey just barely in the rearview, investors may be more sensitive to this coming storm.

I’m speculating of course but it looks to me like investors returned from their summer mindsets and got to work re-evaluating risks.  I don’t know whether this is the beginning of a new volatility regime or just a startle, but most market-watchers have been harping on the various risks of the world for a long time (myself included).  For the past year, the market has happily climbed without much volatility.  Shorts whined that the market was pollyannish.  Bulls triumphed that life was good and would stay good.

The bulls still have the advantage despite today’s action.  Buy-the-dip isn’t about to fade away meekly.

Perhaps, if investors are truly re-pricing/re-assessing risk, the bulls will need positive catalyst to continue the trend.  Perhaps the smooth rallies fueled more by group-think and performance-chasing are behind us?

I hope so but one day doesn’t make a trend.

See you tomorrow,