Stock Market's 'Rolling Correction' & Volatility's Potential to Ignite Wild Swings

0:00Let's get out to George Sillis now because we do have some data and I suppose we're getting an indication of how investors are feeling about everything George, but we want to know how consumers are feeling as well, particularly because of how people are feeling at the pump about some of these kitchen table issues. We've just got the survey out from you, Mish. What was through what you're seeing? Well, I mean, this is soft data. So you can see that the earners impact going on since the end of February, because if you look at the sentiment numbers as a whole, they published 53.3. That was down relative to the previous month at 56.6, but also missing the consensus estimates, which were already expected to be down to around 55.5. But you can see also that if you look at the one year inflation expectations, they've jumped about 40 basis points to 3.8% from 3.4%. Again, they were forecasted to be pretty much in line relative to the previous month at 3.4. The five year inflation expectations didn't budge that about around 3.2%. So it looks like right now, at least from a consumer sentiment standpoint or consumer expectation standpoint, everyone seems to be in line with what's going on with oil prices moving higher.

1:15And it's also again reflective of what's going on the bond market. You mentioned the 10 year yields, the two year yields are softening just slightly today, but around 3.95% that continued increase as a result of what's happening from an inflation push standpoint across the board from energy. Yeah, I was seeing long term bonds biggest ever outflow since March 2020. So that really gives you an idea of that end of the curve, as you say. I mean, obviously we've seen that as a global story that's been playing out everywhere from Germany to the UK to Australia as well, much more sort of hawkish sounding central banks with some of these inflation pressures. I suppose the big question is, you know, what we're going to see on the fiscal side, you know, as far as, you know, government stepping into support. What is now looking like potentially shaky growth forecast with some of the stagnationary signals we're getting from like the PMIs, for instance. So President Trump came out with this truth social post, interesting timing. It was just minutes after the Wall Street closed yesterday.

2:19After what had been a pretty tough day for markets, it seems to have failed to spark some optimism now as we go into the weekend. Just walk us through what you think that means and some of the other headlines, which may be weighing on sentiment today, George. So, you know, I think let's look at things from a half glass full standpoint, at least from a sentiment standpoint. Go back to April of last year, sentiment was actually quite a bit lower. So we're not actually at that level as of the tariff scare last year, April, as we are now. So that's positive. So it looks like to me at the very least that consumers expect this to pass. But if you look at the markets, interesting enough this week, the S&P is now, at least right now trading below last Friday's low. So again, if you look at the 50 week moving average, it's trading below that level. And that could again add some more pressure into the next coming couple of weeks, but the challenge really lies. And I think this is the consensus out there that everyone expects this to pass.

3:21That actually might be a little bit dangerous in this environment. In other words, everyone is ready not selling as much as they would like to or you would expect them to. It seems like there's a institutional support of this market, but again, everyone's on the one side of the trade. There doesn't seem to be a aggressive selling going on. So we're rolling correction is how I describe it. It's a really bad correction because it's just slowly grinding to the downside of the ball to the upside. The challenge really lies is going into the weekend position traders probably don't want to hold positions. The less things change, which they can't on a dime because we know a tweet or some sort of comment from the White House can flip this market. And that might come about from some some more clarity on the war, but also it could come about from some reprieve or pull back on tariffs. Those are two very prominent catalysts that could create a whip saw rally back to the upside. So, you know, it's a challenge to be short this market, but it's also a challenge to add longs. And so what it's worth again, you just have to wait and see until we get some concrete clarity on on the actual war because

4:26looking at crude oil this week, it really hasn't moved all that much compared to last week, but the markets haven't been really receptive to some of the positive news. Especially the news after the close yesterday on the Trump administration's pause on at least attacks on oil and destruction I ran. Well, that's right. And after that, I mean, we broke that on market on close just before we wrap things up yesterday. And I've been looking a lot of the commentary following that saying is this a taco trade because they have been good for the markets, but that doesn't seem to be the case so much. And, you know, maybe it's because of some of the conflicting headlines. The expectation of more troops are heading obviously to the Middle East as well. It's a fascinating journal report on Iran actually blocking two Chinese ships from Humus, which is pretty rare given that if you've had a Chinese flag on your ship, you've actually been for the most part allowed through. But yeah, it's an interesting market given what you've just laid out. Binary risk, isn't it, George? I mean, it can de-escalate as quickly as it can re-escalate.

5:30In that territory, you've got S&P sectors like financials, discretionary, communication services and technology. Just walk us through what your expectations are for volatility heading into the weekend since we have seen that de-risking typically in the last few weeks. Well, I mean, if you look, I'm just looking at the term structure right now. The term structure is relatively flat, looking at nine to 30-day to 90 volatility. So again, that speaks to potentially some sort of a pivot back to the upside in very short order. So that's the challenge of saying, hey, I'm going to attack to the downside and be a bear because any tweet can change the outcome of this market. But again, you know, the market rolling over at least right now as of things are trading so far. There's a possibility we end up near the February, last year February levels, again, prior to the tariff scare. That's a possibility because that's a technical shelf at least on the market. But again, you know, unless there's some reprieve, this market's still going to be relatively challenged because this week's interesting in the sense that crude oil really hasn't spiked all that much higher compared to last week,

6:40but the markets have not been, you know, receptive. Plus, I think the endogenous factors are still out there. And that includes, you know, the private credit risk, which I've talked about quite a bit that there's no such thing as sequestration of private credit. It's baked into the banking system, it's tight in the banking system that you can create an asset liability mismatch. Plus, you know, looking at the memory manufacturers, micro and sand is there up a little bit today, but they've been down significantly over the last couple of weeks. And the big mega cap names like Microsoft and Oracle have been really rolling over since late last year, the Q4 last year. So I think that's indicative of potentially the over investment cycle of AI. That's endogenous, but again, you throw in the exogenous factors, tariffs, war. It's just too much. And I think right now the market is telling us this, but again, it's tough to be short because any outcome could be positive to reverse this market higher. I was speaking to some of my guests about that as well. I mean, being capexed up to the eyeballs in a market like this when you have a potential for an energy shock not to mention some of those memory prices.

7:43It's why we've seen perhaps migration of cap is allowed of some of the paper assets into some of the harder assets. Even though they've pulled back a bit, but you've got gold and silver up on a day when the dollar is up as well. So it's such an interesting market from the perspective of some of these dynamics. George, really appreciate it. Thanks for getting us across some of the moves for us today. Thank you very much.