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
Ho hum. Today was pretty quiet even though there were a couple of events worth mentioning. First thing is that Trump is talking to the Democratic leadership about getting rid of the debt ceiling altogether. Second thing is that the ECB didn’t do anything today but made hawkish hints/noises. Third thing is that Irma still looms large and there’s a new hurricane, Jose, right behind.
None of these events really drove trading today but let’s discuss them a bit since they could have more profound consequences, even in the near future.
- Debt ceiling
- So the market was relieved that Trump and the Dems did an end-around the Republicans and pushed back the debt ceiling deadline by 3 months. The market always assumed that the ceiling would be lifted, which would be VITAL to the smooth operations of the Treasury market. That said, the market certainly doesn’t want to be forced into a binary situation and if Congress did something stupid, a global market calamity would follow. The new wrinkle is that if the debt ceiling is eliminated altogether, the market never has to worry about this artificial default event. That’s quite a long-term positive, should it happen.
- ECB kinda hawkish
- They certainly weren’t making hiking noises but the European economy has a rosy future (in their estimation) and so the Euro rallied (Dollar weakened) and general European bullishness gets a boost. The US may no longer be the best house in a bad neighborhood (when it comes to equity investing). There is no alternative (TINA) to US stocks may no longer drive international flows. Additionally the US dollar weakened, which has generally positive implications for US large caps, generally positive implications for broader growth, potentially inflationary implications for the economy. The bottom line here is that a stronger Europe (long fabled, rarely witnessed) would be a large shift in the investing landscape. Markets didn’t make a big move today though so it looks like investors are looking for proof.
- Hurricanes coming
- Markets are still in wait-and-see mode for what Irma, and then Jose, brings to the US. Investors are not getting bearish in anticipation but they are definitely more sensitive to the risks. Dip-buying still exists out there but there’s been a distinct lack of follow through, relative to earlier in the year. I explain this simply as the market respecting the possibilities of the risks out there. This could be wishful thinking on my part but if I’m right, it doesn’t mean the bull market is over. I think it means that the upside has to go hand-in-hand with positive events. It won’t just happen because of momentum.
As I said before, these three developments didn’t affect US stocks much. Obviously their direct consequences aren’t immediately significant but I think they suggest bigger potential changes for the market. Whether the market actually changes its perceptions tomorrow or in three months, I can’t say.
It just looks like the market is toying with/contemplating a shift in these perceptions, which would be big.
See you tomorrow,