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.

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The opinions expressed below are my own

Up some more. What is there to say at this point? Nothing. Let’s just go over the January data:

• 12^th positive trading session out of 15 total
• Up 6.2% so far

o In top 8% of months since 1984

• Earnings season is looking good

o Positive surprises are running 78% vs a 70% average

o Growth rates are increasing (see below)

• 396 sessions since the last 5% drawdown

o longest stretch in the last 88 years (1930-present)

Let’s dive into earnings a little at this point…

2017 Q4 Earnings season:

10% of the S&P 500 reporting (+4% vs 1/18 data)

Surprise vs Estimates

• Sales: +0.9% (+0.4% vs 1/18 data)
• Earnings: +2.3% (+0.7% 1/18 data)

Growth vs Prior (Y/Y)

• Sales: +6.4% (+1.1% vs 1/18 data)
• Earnings: +7.6% (+2.0% 1/18 data)

Let’s discuss.

Things are good. That is a fact. I’m happy things are good also. The issue with US equities (maybe global equities) is what they are pricing in? Are they pricing in perfection? Are they pricing in better than perfection?

I’ve worried out loud about valuations and also whether central bank policies are out of control.

Let’s think about things a bit differently though. Let’s pretend nothing is overvalued and there are no macro distortions at work. There’s still a huge problem with the way US equities are behaving. The price action is so smooth and so steady that the market no longer perceives equities to have risk.

At least in the dot-com era, the risk was obvious. Stocks were bouncing around like crazy. Outsized returns were there but so were outsized downdrafts. Investors that played in equities back then knew they were taking big risks.

The last two years have looked and felt very different than any period I can remember. I wonder how the investing public’s perception and attitude is changing when it comes to risk.

Here’s a 10 year chart of the S&P with a realized volatility measure in yellow. Risk and reward have diverged over the last 2 years. It’s a bizarre thing.

I don’t know what it means but it makes my skin crawl. Something is wrong and nobody is worried.

See you

tomorrow

,

-Mike