Snappy Answers to Smart Questions

A big part of my day-to-day routine is being asked various questions about current market behavior, preferably answered in media-friendly segments. Also, quite frankly, I get asked more questions on down days than up.  After a couple of down days that have followed some spectacular market advances, I’ve been the recipient of quite a few recently.  I was always a big fan of “Mad” magazine’s “Snappy Answers to Stupid Questions” segments, but considering that the inquiries have been quite insightful, I’ll offer an array of my recent snappy answers to smart questions.

• Are you seeing customers continuing to buy the dip?  – Heck yeah!  Just look at the way that the S&P 500 (SPX) and Nasdaq 100 (NDX) bounced as if on cue yesterday morning and then stayed well away from the early lows.  Overall, we saw net buying activity in almost all of our 25 most active names, with recent decliners PLTR, CRWV, and NVDA showing the most bias to the buy side.   Net overall options activity among those 25 names shows net delta buying recently (call buys > sells; put buys < sells).

• Do you expect the bull market to continue? –   To some extent this is a matter of perspective.  It takes an awful lot to disrupt powerful multi-month trends.  Changes like that require a process, not a couple of days here and there.  But with people becoming more cognizant of the challenges, it is difficult to expect the prior pace to continue without disruptions.  In the near-term, if Chair Powell can give a market-friendly speech and NVDA can meet, if not exceed, expectations, then yes, the bull market trends will likely remain in place.  If not, a re-evaluation will be necessary.

• You have talked about the FOMO trade before – will it be enough to sustain rally?  – FOMO (Fear of Missing Out) and momentum only go so far.  We’re already seeing some signs that institutional investors – the ones who experience FOMO at a professional level because their jobs are at risk if they underperform – are underweighting some of the biggest names and using upside calls to hedge their FOMO.  This is actually helping keep VIX higher than it otherwise might have been, because we now have demand for upside “FOMO hedges” along with the usual demand for downside protection.

• Any expectations on the Fed tomorrow, September, this year? – This is something we discussed at length earlier this week.  My gut is that Powell will stress data dependency as a way of pushing back on the President’s pressure to cut rates.  When we look at the dual mandate, it’s clear that labor is not great, but a 4.2% unemployment rate is far from dire.  Inflation is relatively cooperative, but the PPI was a shocker, and we’ve seen Core CPI and Core PCE rising each of the past three months.  And remember that tariffs only went into full effect two weeks ago.  Considering that we will get at least one more fresh data point on all those price measures and jobs before the next FOMC meeting, he can easily lean into data dependency.  I also think he’ll stress that rates are at worst only slightly restrictive, as we read in yesterday’s release of the minutes to the July FOMC meeting. Can you think of any financial activity that is being impaired by the current rate environment?  Stocks? Credit spreads? Highly speculative assets (crypto, SPACs, etc.)?  One could assert that housing and real estate are somewhat impeded, but getting people to give up their Covid-era mortgages will take much more than 25 or 50 bp here and there.  Rate cut expectations have been dropping recently, and this type of thinking might be re-entering the market’s mindset.

• Are you seeing anything significant ahead of Nvidia earnings?  Not much, yet.  To be fair, we don’t always see much options activity in high volatility names until a day or two before the event because options buyers don’t want to bear the cost of decay.  Currently the market is pricing in a roughly 6% post-earnings move, which is hardly dramatic.  Broader volatility measures don’t show much concern either, with VIX9D (the Cboe’s measure for the market’s expectation for SPX volatility over the coming 9 days, as opposed to the VIX’s 30 days) trading at a relatively subdued 16 and below that of VIX’s 16.68.  Considering that the 9-day period includes Powell’s speech and NVDA earnings, that’s not much concern.

• Any thoughts on Cracker Barrel’s (CBRL) double-digit percentage decline after backlash to its logo change? – CBRL is effectively an “anti-meme” stock today.  One of the features of the original meme stocks, as opposed to the recent fleeting, one-day wonders, was the nostalgia and enthusiasm associated with GameStop (GME), AMC Entertainment (AMC) and others.  CBRL fits that bill, and the social media outrage is certainly resonating with a big piece of its customer base.  Heck, if Sydney Sweeney can get American Eagle Outfitters (AEO) moving up because of a viral ad campaign, then why can’t a backlash do the opposite to CBRL?

Could I have been even snappier?  Almost certainly.  But these are all important, far from stupid questions that are on intelligent peoples’ minds.