WEBVTT - Goldman Sachs Partner John Flood Talks Selloff, Stocks Dip

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>As you know, trading news.

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<v Speaker 3>A lot of things keep us honest and all bullish

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<v Speaker 3>things must come to an end. We're certainly seeing that

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<v Speaker 3>in the trade today, tim or at least a little

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<v Speaker 3>bit of a breather.

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<v Speaker 1>Yeah, as we've been reporting, as you just heard from

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<v Speaker 1>Charlie wall Street's historic weekly run, poised to come to

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<v Speaker 1>a halt. Stocks and bonds falling after that solid jobs

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<v Speaker 1>report added to speculation the Fed's next interest rate move

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<v Speaker 1>could actually be a hike.

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<v Speaker 3>All right, So let's get into the trade now that

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<v Speaker 3>we know what the backdrop is. Right now, Natalia Kenny

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<v Speaker 3>Javich is with us Bloomberg News Equities reporter.

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<v Speaker 2>She's back at home base in.

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<v Speaker 3>Bloomberg headquarters in New York City, along with John Flood.

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<v Speaker 3>He's Goldmeza's partner and head of America's equities execution services.

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<v Speaker 2>As we said, both back in New York City.

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<v Speaker 1>Hey John, Natalia, good to have you both with us. John,

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<v Speaker 1>I just want to get your thoughts on where we

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<v Speaker 1>are in maybe a cycle here, and I'm struck by

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<v Speaker 1>the news of Meta platform shares down right now, the

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<v Speaker 1>company weighing a big equity raise after that blockbuster Google

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<v Speaker 1>deal that we got earlier this week, eighty five billion

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<v Speaker 1>dollars in a share sale. John, I know I'm not

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<v Speaker 1>going to get you to comment on an individual company,

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<v Speaker 1>but comment on what it means to you when you

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<v Speaker 1>have huge megacap tech companies doing share sales or possibly

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<v Speaker 1>doing share sales like this, what signal does it tell you?

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<v Speaker 4>Signal tells me that it's a very healthy market right

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<v Speaker 4>now in terms of the supply and demand that's out

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<v Speaker 4>there in the marketplace. And I think that we've seen

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<v Speaker 4>you know, I speak with institutions at Goldman Sachs Institutional Investors,

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<v Speaker 4>and there's never been more robust demand for these offerings.

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<v Speaker 4>And my expectation is that trend continues, and that's a

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<v Speaker 4>major piece of why we are very constructive this equity market.

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<v Speaker 4>Despite s and P five hundred already making you know,

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<v Speaker 4>twenty four all time highs, we expect more of that

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<v Speaker 4>to come in the future.

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<v Speaker 3>So, John, how do we know though, that it isn't

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<v Speaker 3>just a case of fomo and people just chasing. I mean,

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<v Speaker 3>it's so much money, so much much momentum in terms

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<v Speaker 3>of the AI spend and build debt side equity tapping markets.

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<v Speaker 3>We heard from the Bloomberg technology folks yesterday a big

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<v Speaker 3>conference lots of major players in the AI space saying

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<v Speaker 3>demand is incredible.

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<v Speaker 2>They just the momentum.

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<v Speaker 3>How do we know, though, that it's not just kind

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<v Speaker 3>of a major, major fomo trade and that there's going

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<v Speaker 3>to be some kind of reality or reckoning coming in

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<v Speaker 3>the near future.

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<v Speaker 4>Because from the institutional investor perspective, we actually still see

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<v Speaker 4>a lot of discipline out there. There's still, I think

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<v Speaker 4>a wall of worry left to climb higher in this market.

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<v Speaker 4>What we look at is our prime brokerage data, and

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<v Speaker 4>one of the most important pieces out there right now,

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<v Speaker 4>I think is gross exposure. So essentially hedge funds are

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<v Speaker 4>still long a lot of their single stocks at AI

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<v Speaker 4>tech exposed names. They're also more short macro products against

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<v Speaker 4>these lungs than they ever have been in the history

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<v Speaker 4>of our data set. What that tells me is there's

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<v Speaker 4>still healthy skepticism about what is going to happen next.

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<v Speaker 4>I want to hold my lungs, but I want to

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<v Speaker 4>make sure I'm hedged, and it's essentially the most hedged

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<v Speaker 4>we've ever seen. Hedge fund clients at Goldman Sachs on

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<v Speaker 4>the equity For.

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<v Speaker 5>John, what is your take actually on today's stock market

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<v Speaker 5>sell off? Because we hear lots of conversations about some

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<v Speaker 5>market participants, you know, taking profits of the table because

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<v Speaker 5>they're prepping for this huge wave of big tech IPOs.

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<v Speaker 5>So what is your take and what does Goldman also think?

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<v Speaker 5>Is it a buying opportunity? Is it time to buy

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<v Speaker 5>the dip?

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<v Speaker 4>I think that there have been few and far dips

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<v Speaker 4>to buy so far this year, So yes, when you

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<v Speaker 4>have a two percent sell off in the S and

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<v Speaker 4>P five hundred, it is paid to buy those dips.

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<v Speaker 4>And I think it continue and I think that will continue.

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<v Speaker 4>I think today you have some profit taking into the

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<v Speaker 4>weekend ahead of what is likely going to be continued supply,

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<v Speaker 4>as evidenced by the news that just broke. But really

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<v Speaker 4>we had a strong job sprint this morning, and I

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<v Speaker 4>would say, what are the fears that people continue to

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<v Speaker 4>list as top concerns. It's inflation, it's Iran, it's private credit.

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<v Speaker 4>And this morning's jobs print, you know, has moved, has

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<v Speaker 4>rates moving higher, and people now think that we will

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<v Speaker 4>get a rate hike and buy your end. So it

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<v Speaker 4>is I think it's healthy. I do think it's a

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<v Speaker 4>buying opportunity, and I think that there is still a

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<v Speaker 4>significant amount of worry cash on the sideline short exposure

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<v Speaker 4>out there for the market to climb higher.

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<v Speaker 5>Got it, you know. I also wanted to ask you

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<v Speaker 5>about one indicator tracked by Golden Sacks. It basically tracks

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<v Speaker 5>all positioning across hedge funds, long only investors, retail funds.

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<v Speaker 5>It is interesting because the stock market is at all

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<v Speaker 5>time high at the same time, positioning is still at

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<v Speaker 5>a neutral level, which means that there is more room

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<v Speaker 5>to run. So, first of all, please tell me why

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<v Speaker 5>is that, why positioning is still so low and what

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<v Speaker 5>it means for the stock market direction.

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<v Speaker 4>It's likely a tailwind, and that's exactly what we said.

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<v Speaker 4>Despite us being close to all time highs at the

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<v Speaker 4>index level, from an institutional investor perspective, there is still

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<v Speaker 4>concern out there. We see that through gross exposure being

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<v Speaker 4>at all time high, expressed through a lot of short

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<v Speaker 4>hedges in macro product and from mutual fund cash balances.

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<v Speaker 4>If you look at notional dollars that remain on the

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<v Speaker 4>sidelines for mutual funds, we are still at you know,

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<v Speaker 4>we're still at a long term average. It's not like

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<v Speaker 4>there's it's not an outlier. So when you look at

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<v Speaker 4>hedge fund exposure, you look at mutual fund cash, there's

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<v Speaker 4>still plenty of skepticism left out there. That's why our

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<v Speaker 4>sentiment indicator is showing healthy positioning, not over extended positioning.

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<v Speaker 3>John, that makes me happy that there's some negative sentiment

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<v Speaker 3>out there. I get very nervous. You know, We're just

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<v Speaker 3>at this tech event. We talked a lot about AI Hottana,

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<v Speaker 3>Broadcom was here, I mean all of the major players.

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<v Speaker 2>And there was a lot of enthusiasm.

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<v Speaker 3>I think it's safe to say, with some cautiousness, but

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<v Speaker 3>a lot of enthusiasm. Having said that, because of what

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<v Speaker 3>you are seeing, particularly among institutional investors in hedge funds,

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<v Speaker 3>do you think the retail investor in markets overall are

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<v Speaker 3>not really thinking that we could see some kind of

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<v Speaker 3>pullback or many correction As a result.

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<v Speaker 4>I think that there is a slight disconnect between the

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<v Speaker 4>retail investor right now and the institutional investor. That being said,

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<v Speaker 4>I think that retail will continue to buy the equity

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<v Speaker 4>market as we have some megacap IPOs likely in the

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<v Speaker 4>pipeline between now and your end, we'll see how that

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<v Speaker 4>plays out. But these are high profile companies that typically

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<v Speaker 4>grab the attention of retail, and once retail stops starts buying,

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<v Speaker 4>they don't really stop unless there is true job loss.

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<v Speaker 4>Our data shows that that retail bid disappears when there

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<v Speaker 4>is job loss. And the last time that we saw

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<v Speaker 4>retail as a net seller of the US equity market

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<v Speaker 4>for more than a consecutive week was back in March

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<v Speaker 4>of twenty twenty, during the depths of COVID. So really,

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<v Speaker 4>like you have to watch the you have to watch employment,

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<v Speaker 4>you have to watch jobs, and until we start to

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<v Speaker 4>see job destruction, that retail bid will likely remain a healthy,

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<v Speaker 4>a healthy constant in the marketplace.

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<v Speaker 1>Well, we certainly got a positive print today in that arena. John,

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<v Speaker 1>I'm wondering, though, what would give you pause apart from

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<v Speaker 1>job losses, what would what would give you pause with

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<v Speaker 1>an equity rally such as this.

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<v Speaker 4>If we started to get disappointing in earnings and frankly,

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<v Speaker 4>we continue to see companies clear these hurdles. Last quarter

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<v Speaker 4>earnings were solid. We are optimistic about next quarter. If

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<v Speaker 4>you start to see earnings holistically across the S and

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<v Speaker 4>P five hundred disappoint That would be highly concerning to me.

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<v Speaker 4>We haven't seen any evidence of that. We aren't bracing

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<v Speaker 4>for any evidence of that in the near term.

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<v Speaker 5>I have to ask you, John about systematic funds, because,

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<v Speaker 5>as we remember in March, this market was really driven

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<v Speaker 5>by technical factors. What does your data tell us right

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<v Speaker 5>now about how positioning look like looks like across CTA's

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<v Speaker 5>wall control funds, and what does it mean again for

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<v Speaker 5>the stock market direction.

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<v Speaker 4>Systematic funds have had a solid year of performance and

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<v Speaker 4>right now they are relatively full in terms of S

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<v Speaker 4>and P five hundred exposure. This is an incredibly momentum

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<v Speaker 4>driven community and right now, as the market moves higher,

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<v Speaker 4>they will continue to add. That being said, the highest

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<v Speaker 4>velocity of buying is behind us. If we do take

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<v Speaker 4>a turn lower, you have several more days of what

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<v Speaker 4>we're going through today, you will see that CTA community

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<v Speaker 4>start to sell the equity market. That being said, the

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<v Speaker 4>systematic positioning in the marketplace is very small relative to retail,

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<v Speaker 4>relative to corporates, relative to hedge funds, asset managers, sovereign

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<v Speaker 4>wealth funds, So that would be one noteworthy piece of supply.

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<v Speaker 4>We think all the other sleeves of demand outweigh that

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<v Speaker 4>in a move lower.

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<v Speaker 5>I agree, But at the same time, when they sell,

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<v Speaker 5>you really feel it because they do it so quickly. Correct.

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<v Speaker 5>So again I got in today's sale off, we see

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<v Speaker 5>that the S and P five hundred, basically it's now

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<v Speaker 5>trading P ratio closer to long term average. So do

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<v Speaker 5>you feel that the market right now is fairly priced

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<v Speaker 5>in ahead of the next earning season.

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<v Speaker 4>We don't think it's overly expensive. We get this question

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<v Speaker 4>in terms of, you know, are we optimistic on earnings. Yes,

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<v Speaker 4>we get this question within memory space all the time,

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<v Speaker 4>and we still think Memory, one of the highest momentum

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<v Speaker 4>sleeves of the market right now, is still relatively fairly priced.

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<v Speaker 4>And we see that with our institutional clients right now.

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<v Speaker 4>There's a ton of focus in Korea, in Taiwan, outside

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<v Speaker 4>of the US, and it's there is still you know,

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<v Speaker 4>there's still real value to find. Even though some of

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<v Speaker 4>these markets appear to have gone up into the right,

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<v Speaker 4>they're still room to run because the fundamentals back it.

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<v Speaker 3>Hey, John, just oh gosh, go ahead, and time please

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<v Speaker 3>go ahead, Carol, Hey, Well, I've just got to ask John.

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<v Speaker 3>We just got about thirty forty seconds. We obviously want

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<v Speaker 3>like an hour with you because this is all incredible.

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<v Speaker 3>The IPO cerebras IPO that was the biggest, We're getting

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<v Speaker 3>ready for the SpaceX IPO, anthropic IPO just watching.

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<v Speaker 2>I know you can't talk specifics.

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<v Speaker 3>But does any of this smell a little bit like

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<v Speaker 3>a top of the market or does it all feel

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<v Speaker 3>justified and fundamentally justified?

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<v Speaker 2>And again, just got about thirty seconds.

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<v Speaker 4>As of right now, we still think that fundamentals justify

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<v Speaker 4>what we're seeing go on in the equity market. So yes,

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<v Speaker 4>like we are constructive on our desk, we think S

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<v Speaker 4>and P five hundred. We think these dips are buying opportunities,

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<v Speaker 4>and we think that there's a clear path to eight

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<v Speaker 4>thousand and beyond this year.

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<v Speaker 2>Wow.

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<v Speaker 3>All right, John Flood, thank you so much, gol Matza's partner,

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<v Speaker 3>head of America's equities execution Services. I hope you will

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<v Speaker 3>grace us with coming back again and joining us. Natalia

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<v Speaker 3>Kenny Javitch of course too, and really appreciate it. She

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<v Speaker 3>is Bloomberg News equities reporter back there at Bloomberg headquarters