1 00:00:03,120 --> 00:00:09,480 Speaker 1: Bloomberg Audio studios, podcasts, radio news. The S and P 2 00:00:09,560 --> 00:00:12,840 Speaker 1: five hundred just had its best first quarter in years, 3 00:00:13,280 --> 00:00:15,600 Speaker 1: and that's thanks in large part to the strength of 4 00:00:15,640 --> 00:00:19,759 Speaker 1: a familiar group of names, including Nvidia, Meta, and Microsoft, 5 00:00:20,120 --> 00:00:24,000 Speaker 1: big tech companies that are investing heavily in AI. Shares. 6 00:00:24,040 --> 00:00:26,799 Speaker 1: Of Nvidia alone, we're up more than eighty percent. 7 00:00:27,280 --> 00:00:30,159 Speaker 2: There have been over twenty records posted by the S 8 00:00:30,240 --> 00:00:33,080 Speaker 2: and P so far this year, and that's on top 9 00:00:33,120 --> 00:00:35,560 Speaker 2: of already at the end of last year the fourth 10 00:00:35,600 --> 00:00:36,960 Speaker 2: quarter being incredible. 11 00:00:37,440 --> 00:00:40,400 Speaker 1: That's Carly Wana. She covers the stock market for Bloomberg 12 00:00:40,520 --> 00:00:44,240 Speaker 1: and she's been chronicling this record setting run. But now 13 00:00:44,280 --> 00:00:46,720 Speaker 1: the investors she's been talking to are trying to figure 14 00:00:46,760 --> 00:00:49,879 Speaker 1: out what will happen next. Will the market continue to 15 00:00:49,960 --> 00:00:53,360 Speaker 1: soar to new heights or will it come crashing down? 16 00:00:53,880 --> 00:00:56,680 Speaker 1: And one indicator they've been watching and Carly has also 17 00:00:56,680 --> 00:01:00,000 Speaker 1: been paying close attention to, is something called the VIC. 18 00:01:00,560 --> 00:01:02,040 Speaker 1: It is the volatility index. 19 00:01:02,120 --> 00:01:07,080 Speaker 2: It is oftentimes thought of as the fear gauge. 20 00:01:07,120 --> 00:01:09,880 Speaker 1: For a while now, the VIX has been pretty low 21 00:01:10,280 --> 00:01:14,120 Speaker 1: and indication there hasn't been much investor anxiety. But in 22 00:01:14,120 --> 00:01:18,200 Speaker 1: the last couple months Carly has spotted something striking. Average 23 00:01:18,280 --> 00:01:21,520 Speaker 1: daily call volume on the VIX has started to rise. 24 00:01:22,160 --> 00:01:29,040 Speaker 2: People are buying more VIX call options, so basically positioning 25 00:01:29,200 --> 00:01:31,520 Speaker 2: for potential advances in volatility. 26 00:01:33,240 --> 00:01:37,280 Speaker 1: Investors are buying market insurance to protect themselves, not for 27 00:01:37,319 --> 00:01:41,279 Speaker 1: a conventional correction, but for something bigger, a potential black 28 00:01:41,360 --> 00:01:44,760 Speaker 1: swan event. So should we be worried that traders are 29 00:01:44,800 --> 00:01:48,320 Speaker 1: preparing for the possibility of a big downturn? Today on 30 00:01:48,360 --> 00:01:51,320 Speaker 1: the show What's driving Markets to all time highs and 31 00:01:51,400 --> 00:01:54,480 Speaker 1: what the VIX tells us about what investors think will 32 00:01:54,480 --> 00:01:57,720 Speaker 1: come next? From Bloomberg, this is the big take. I'm 33 00:01:57,800 --> 00:02:05,520 Speaker 1: David Gerret Carty Wana says, while the market gains we've 34 00:02:05,520 --> 00:02:09,680 Speaker 1: seen aren't particularly surprising, what's been interesting to watch is 35 00:02:09,720 --> 00:02:10,960 Speaker 1: how big they've been. 36 00:02:11,280 --> 00:02:15,040 Speaker 2: Going into the year. The expectations were good. Markets have 37 00:02:15,120 --> 00:02:19,160 Speaker 2: been really propelled by those artificial intelligence stocks. That's still 38 00:02:19,200 --> 00:02:22,160 Speaker 2: the case, although not necessarily as extreme as it was 39 00:02:22,560 --> 00:02:25,440 Speaker 2: at the end of last year, But it was also 40 00:02:25,520 --> 00:02:28,280 Speaker 2: based off of this hope and this expectation for when 41 00:02:28,280 --> 00:02:31,799 Speaker 2: the Federal Reserve would start to cut rates, and honestly, 42 00:02:31,960 --> 00:02:35,240 Speaker 2: the expectations for that have been pretty dashed. For when 43 00:02:35,360 --> 00:02:37,960 Speaker 2: that's going to start happening, and that's been pushed out 44 00:02:37,960 --> 00:02:42,080 Speaker 2: and pushed out. Yet despite that, markets have still gone up, 45 00:02:42,120 --> 00:02:44,840 Speaker 2: and they've gone up quite notably, and a lot of 46 00:02:44,840 --> 00:02:48,400 Speaker 2: it does, in fairness, come from really strong earnings that 47 00:02:48,520 --> 00:02:51,560 Speaker 2: have held up. So evaluations are high, but they're not, 48 00:02:52,120 --> 00:02:55,200 Speaker 2: by some measures, at least completely overstretched and over extended. 49 00:02:55,760 --> 00:02:58,160 Speaker 1: You mentioned those artificial intelligence stocks, So these were what 50 00:02:58,200 --> 00:03:00,040 Speaker 1: were known as the Magnificent seven. And I'm going to 51 00:03:00,080 --> 00:03:07,800 Speaker 1: test myself here. That's Alphabet, Amazon, Meta, Microsoft, Apple, Nvidia, 52 00:03:07,840 --> 00:03:09,919 Speaker 1: and Tesla. Did I get all of them? I think 53 00:03:09,960 --> 00:03:12,880 Speaker 1: you got all of them. I remember last year when 54 00:03:12,880 --> 00:03:16,280 Speaker 1: they were doing so well, there was a lot of 55 00:03:16,320 --> 00:03:19,480 Speaker 1: commentary about how we needed to see that rally broaden. 56 00:03:20,080 --> 00:03:21,480 Speaker 1: Has it broaden more? 57 00:03:21,680 --> 00:03:25,560 Speaker 2: Yeah, it's gotten better. It's still a megacap market. The 58 00:03:25,600 --> 00:03:28,919 Speaker 2: momentum trade, which kind of buys stocks that are outperforming, 59 00:03:29,080 --> 00:03:32,919 Speaker 2: is still going well, and that's still kind of taking off. However, 60 00:03:33,280 --> 00:03:36,240 Speaker 2: we included in our story that at any given trading session, 61 00:03:36,240 --> 00:03:38,440 Speaker 2: about seventy percent of the S and P five hundred 62 00:03:38,480 --> 00:03:41,120 Speaker 2: was moving above its two hundred day moving average. So 63 00:03:41,200 --> 00:03:44,360 Speaker 2: that is pretty significant, especially with what we were seeing 64 00:03:44,480 --> 00:03:48,480 Speaker 2: last year. And also I'll note that the SNP beat 65 00:03:48,520 --> 00:03:51,640 Speaker 2: the NASDAK for the quarter for the first time since 66 00:03:51,680 --> 00:03:53,920 Speaker 2: twenty twenty two, So in twenty twenty three the opposite 67 00:03:54,000 --> 00:03:56,480 Speaker 2: held true. NASDAK beat SNP for each quarter. 68 00:03:56,760 --> 00:03:58,400 Speaker 1: What does it tell us when we see the S 69 00:03:58,440 --> 00:03:59,280 Speaker 1: and P besting or. 70 00:03:59,200 --> 00:04:02,320 Speaker 2: Beating the Yeah, it tells us that investors are buying 71 00:04:02,360 --> 00:04:06,440 Speaker 2: something aside from Nvidia, which is exciting for the other companies, 72 00:04:06,960 --> 00:04:09,360 Speaker 2: not to say they're not still buying in Vidia. And 73 00:04:09,400 --> 00:04:12,240 Speaker 2: I would say too that the magnificent seven stocks that 74 00:04:12,320 --> 00:04:16,400 Speaker 2: you touted, they're stoo doing very well, but there's been 75 00:04:16,440 --> 00:04:20,800 Speaker 2: a little bit of more idiosyncrasies within that group. Tesla, 76 00:04:20,880 --> 00:04:23,120 Speaker 2: for example, has not been as high of a performer. 77 00:04:23,160 --> 00:04:26,039 Speaker 2: Apple actually has had a pretty tough year so far 78 00:04:26,240 --> 00:04:29,000 Speaker 2: from twenty twenty four to now. But I would say 79 00:04:29,080 --> 00:04:32,160 Speaker 2: that it tells us that people are looking aside from 80 00:04:32,160 --> 00:04:35,320 Speaker 2: those mag seven names and putting money elsewhere. 81 00:04:35,720 --> 00:04:40,119 Speaker 1: Could you situate that market performance in this broader economic moment? 82 00:04:40,240 --> 00:04:42,880 Speaker 1: So I'm just curious for what makes this good environment 83 00:04:42,920 --> 00:04:46,320 Speaker 1: for yes, these six seven stocks, but more than that, 84 00:04:46,320 --> 00:04:48,040 Speaker 1: why this seems to be such a good moment for 85 00:04:48,360 --> 00:04:49,120 Speaker 1: stocks right now? 86 00:04:49,560 --> 00:04:52,120 Speaker 2: Right so the economic data actually has come in pretty 87 00:04:52,240 --> 00:04:54,680 Speaker 2: pretty strong. That's something that's been talked about a lot. 88 00:04:54,720 --> 00:04:58,040 Speaker 2: But I mean, jobs are doing well, inflation is coming down. 89 00:04:58,080 --> 00:05:01,120 Speaker 2: There's been some surprises here and there, but the Fed's 90 00:05:01,200 --> 00:05:05,080 Speaker 2: preferred inflation gauge, which came out on Friday, actually came in. 91 00:05:05,520 --> 00:05:09,000 Speaker 2: It came in in line with expectations, So that's a 92 00:05:09,040 --> 00:05:12,479 Speaker 2: signal that you know, inflation is cooling to some degree. 93 00:05:12,640 --> 00:05:15,800 Speaker 2: That could also help the Federal Reserve cut rates on 94 00:05:15,839 --> 00:05:19,040 Speaker 2: the timeline that people are holding up again. Jobs has 95 00:05:19,040 --> 00:05:21,479 Speaker 2: been a very strong indicator for people of the job 96 00:05:21,520 --> 00:05:24,160 Speaker 2: market as holding up, and of course also we have 97 00:05:24,720 --> 00:05:28,559 Speaker 2: factory manufacturing data that by some measures really is coming 98 00:05:28,600 --> 00:05:31,479 Speaker 2: in quite robust. Now, the hard part is in markets, 99 00:05:31,960 --> 00:05:35,880 Speaker 2: data that's strong can fluctuate between being good news and 100 00:05:36,080 --> 00:05:38,400 Speaker 2: good news in the sense that yay, the economy is 101 00:05:38,440 --> 00:05:42,039 Speaker 2: doing good, or good news is bad news because oh, 102 00:05:42,240 --> 00:05:45,160 Speaker 2: the economy is doing good, when will the Fed be 103 00:05:45,279 --> 00:05:49,200 Speaker 2: able to cut rates? So it moves back and forth, right, 104 00:05:49,279 --> 00:05:50,719 Speaker 2: it's kind of a double edged sword. 105 00:05:51,560 --> 00:05:54,599 Speaker 1: There's still a lot of optimism about the economy and 106 00:05:54,640 --> 00:05:57,400 Speaker 1: where the market will go next, but there's always the 107 00:05:57,520 --> 00:06:01,560 Speaker 1: chance of a serious downturn, the break will dig deeper 108 00:06:01,600 --> 00:06:04,520 Speaker 1: into the data that suggests Wall Street is getting more 109 00:06:04,600 --> 00:06:14,720 Speaker 1: concerned about a bigger correction. I've been speaking with Bloomberg 110 00:06:14,720 --> 00:06:17,960 Speaker 1: reporter Carly Wana about how a record setting first quarter 111 00:06:18,000 --> 00:06:20,680 Speaker 1: for the S and P five hundred has left investors 112 00:06:20,720 --> 00:06:24,880 Speaker 1: feeling unsure about the market's trajectory, if stock prices will 113 00:06:24,920 --> 00:06:28,279 Speaker 1: continue to climb, or if the engine driving those gains 114 00:06:28,400 --> 00:06:32,279 Speaker 1: will sputter out or come crashing down. One way of 115 00:06:32,320 --> 00:06:35,200 Speaker 1: reading the tea leaves is an index called the VIX 116 00:06:35,600 --> 00:06:38,839 Speaker 1: that fear gauge. When you look at the VIX, now, 117 00:06:38,920 --> 00:06:41,320 Speaker 1: what is it telling you? What's it telling investors about 118 00:06:41,320 --> 00:06:43,919 Speaker 1: that level of anxiety or fear in the market right now. 119 00:06:44,240 --> 00:06:46,840 Speaker 2: So the kind of longer term answer to that is 120 00:06:46,880 --> 00:06:50,560 Speaker 2: the idea that VIX has been uncharacteristically low for some 121 00:06:50,760 --> 00:06:54,279 Speaker 2: time now. There are a suite of reasons and a 122 00:06:54,279 --> 00:06:58,440 Speaker 2: suite of opinions on why that is. However, what we 123 00:06:58,600 --> 00:07:02,239 Speaker 2: noticed on VIX is that while it is incredibly low, 124 00:07:02,720 --> 00:07:07,800 Speaker 2: there are signs that people are positioning more for potential 125 00:07:07,920 --> 00:07:11,640 Speaker 2: tail risk events. So what that means is that within 126 00:07:11,680 --> 00:07:15,000 Speaker 2: the universe of hedging, you can hedge for you know, 127 00:07:15,080 --> 00:07:19,200 Speaker 2: something minor like a small pullback in broad markets, or 128 00:07:19,280 --> 00:07:22,280 Speaker 2: you can really hedge for things going you know, more 129 00:07:22,360 --> 00:07:28,880 Speaker 2: drastically wrong. Recently, people are buying more VIX call options, 130 00:07:29,560 --> 00:07:34,160 Speaker 2: and that would signal that people's fear about an event 131 00:07:34,880 --> 00:07:40,360 Speaker 2: knocking stocks and causing a pickup in volatility has increased. 132 00:07:40,600 --> 00:07:44,360 Speaker 2: Of course, the caveat is that people positioning around VIXED, 133 00:07:44,360 --> 00:07:46,640 Speaker 2: if not necessarily, always mean that things are going to 134 00:07:46,720 --> 00:07:49,840 Speaker 2: go bad. But if we're going by that traditional relationship 135 00:07:49,880 --> 00:07:53,640 Speaker 2: of VIX and high readings of it signal fear, then 136 00:07:53,720 --> 00:07:57,600 Speaker 2: people buying call options tied to it would signal that 137 00:07:57,680 --> 00:08:00,160 Speaker 2: people think that there is a chance, or feel it 138 00:08:00,320 --> 00:08:03,640 Speaker 2: worth at least protecting against the idea that VIX will 139 00:08:03,680 --> 00:08:04,600 Speaker 2: in fact go up. 140 00:08:05,200 --> 00:08:06,800 Speaker 1: So I'm going to synthesize that and correct me if 141 00:08:06,800 --> 00:08:10,680 Speaker 1: I'm wrong. Yes, you have people betting on or buying 142 00:08:10,680 --> 00:08:14,320 Speaker 1: insurance for something big, a black Swan event, but not 143 00:08:14,520 --> 00:08:16,600 Speaker 1: for kind of a run of the mill correction or 144 00:08:16,600 --> 00:08:17,520 Speaker 1: a small pullback. 145 00:08:17,600 --> 00:08:18,480 Speaker 2: Is that right? Yes? 146 00:08:18,600 --> 00:08:19,320 Speaker 1: And I think too. 147 00:08:19,320 --> 00:08:22,440 Speaker 2: It's important to note in this, and our story got 148 00:08:22,440 --> 00:08:24,680 Speaker 2: at this, but part of the reason why the increase 149 00:08:24,680 --> 00:08:28,760 Speaker 2: in hedging for tailorrist events is interesting is because of 150 00:08:29,400 --> 00:08:33,520 Speaker 2: the way that that relates to how people are hedging broadly, which, 151 00:08:33,640 --> 00:08:37,360 Speaker 2: like you said, the demand for hedges is just really 152 00:08:37,440 --> 00:08:40,520 Speaker 2: really low right now, and it has been so the 153 00:08:40,600 --> 00:08:45,120 Speaker 2: fact that people aren't positioning so much or buying insurance 154 00:08:45,160 --> 00:08:48,520 Speaker 2: so much for a regular shregular old draw down and 155 00:08:48,559 --> 00:08:52,400 Speaker 2: the s and P. But they are increasingly relative to 156 00:08:52,600 --> 00:08:54,640 Speaker 2: the six months prior, in the six months at the 157 00:08:54,720 --> 00:08:58,160 Speaker 2: end of twenty twenty three, buying more contracts that would 158 00:08:58,200 --> 00:09:01,839 Speaker 2: protect them in case things, you know, actually go wrong. 159 00:09:01,920 --> 00:09:05,599 Speaker 2: To some extent, that relationship is interesting, and that relationship 160 00:09:05,679 --> 00:09:08,000 Speaker 2: was kind of the crux of the story that we 161 00:09:08,000 --> 00:09:09,199 Speaker 2: are trying to get at. 162 00:09:09,480 --> 00:09:12,440 Speaker 1: For your running the mill investor someone who's not involved 163 00:09:12,480 --> 00:09:16,080 Speaker 1: in the options world, how much does this matter? Is 164 00:09:16,120 --> 00:09:19,080 Speaker 1: it worrisome that you have people betting or getting insurance 165 00:09:19,120 --> 00:09:21,360 Speaker 1: for a dramatic incident that could. 166 00:09:21,120 --> 00:09:27,080 Speaker 2: Perhaps come, You know, I would honestly say that the 167 00:09:27,120 --> 00:09:30,560 Speaker 2: buying of tail risk insurance it's picking up, but it's 168 00:09:30,600 --> 00:09:34,120 Speaker 2: not like it is incredibly pronounced or incredibly extreme, and 169 00:09:34,160 --> 00:09:37,440 Speaker 2: it's not like people are preparing for a complete and 170 00:09:37,559 --> 00:09:42,800 Speaker 2: utter disaster. It's more the idea that you know, professional 171 00:09:42,880 --> 00:09:44,880 Speaker 2: traders and people who manage a lot of money are 172 00:09:44,880 --> 00:09:48,960 Speaker 2: increasingly positioning for that, but are not necessarily increasingly positioning 173 00:09:49,040 --> 00:09:51,960 Speaker 2: for a regulation year old draw down. And again I 174 00:09:51,960 --> 00:09:53,679 Speaker 2: would go back to the you know, what we were 175 00:09:53,679 --> 00:09:56,080 Speaker 2: saying earlier is that S and P five one hundred 176 00:09:56,160 --> 00:09:59,160 Speaker 2: visit all time highs. It has broken more than twenty 177 00:09:59,200 --> 00:10:02,920 Speaker 2: records in the last three months, and there are not 178 00:10:03,080 --> 00:10:08,120 Speaker 2: any signs that that is necessarily going to go immediately awride. 179 00:10:08,120 --> 00:10:10,080 Speaker 2: There hasn't been a data point or there hasn't been 180 00:10:10,080 --> 00:10:14,400 Speaker 2: an earnings collapse completely, So I would say, you know, 181 00:10:15,240 --> 00:10:16,319 Speaker 2: do with that, which you will. 182 00:10:18,240 --> 00:10:21,320 Speaker 1: But we are at this moment when some investors believe 183 00:10:21,400 --> 00:10:23,720 Speaker 1: it's prudent for them to take out more insurance. 184 00:10:24,240 --> 00:10:27,600 Speaker 2: Look, I guess that the real takeaway here is options 185 00:10:27,640 --> 00:10:31,600 Speaker 2: have become increasingly important as something that not just large 186 00:10:31,600 --> 00:10:34,880 Speaker 2: institutional players use, but a lot more mom and pop 187 00:10:34,880 --> 00:10:38,400 Speaker 2: investors are starting to use these contracts for a variety 188 00:10:38,400 --> 00:10:41,959 Speaker 2: of reasons, whether it's hedging or speculating, or some sort 189 00:10:42,000 --> 00:10:44,959 Speaker 2: of mix of both. But I think the interesting thing 190 00:10:45,000 --> 00:10:47,040 Speaker 2: that you can always glean from options markets is that 191 00:10:47,360 --> 00:10:51,400 Speaker 2: it's positioning. So stocks are interesting the extent that it's 192 00:10:51,400 --> 00:10:54,959 Speaker 2: happening right now and The question is what will they 193 00:10:55,000 --> 00:10:57,960 Speaker 2: do and what's priced in and options are You know 194 00:10:58,000 --> 00:11:01,120 Speaker 2: they're equity derivatives. They're contracts that literally tell you what 195 00:11:01,160 --> 00:11:04,720 Speaker 2: people are betting on or positioning for in the future. 196 00:11:09,080 --> 00:11:11,640 Speaker 1: This is The Big Take from Bloomberg News. I'm David Gera. 197 00:11:12,120 --> 00:11:15,000 Speaker 1: This episode was produced and mixed by Alex Sagura. It 198 00:11:15,120 --> 00:11:18,120 Speaker 1: was edited by Caitlin Kenny and Eric Wiener. Our senior 199 00:11:18,160 --> 00:11:21,800 Speaker 1: producer is Naomi Shaven. Elizabeth Ponso is our senior editor. 200 00:11:22,040 --> 00:11:25,480 Speaker 1: Nicole Beemster Bor is our executive producer. Sage Bauman is 201 00:11:25,520 --> 00:11:29,080 Speaker 1: Head of Podcasts. Thanks for listening. Please follow and review 202 00:11:29,120 --> 00:11:31,800 Speaker 1: The Big Take wherever you listen to podcasts. It helps 203 00:11:31,840 --> 00:11:34,480 Speaker 1: new listeners find the show. We'll be back tomorrow.