Market Meltdown Recap

Published Aug 6, 2024, 12:17 PM

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Joe Saluzzi. Partner and Co-Founder/Co-Head of Equity Trading at Themis Trading, talks about Monday's major stock market meltdown and what we should be actually worried about.

Hosts: Carol Massar and Matt Miller. Producer: Paul Brennan and Sebastian Escobar

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We're kind of getting the band back together, as we like to say, a voice that Matt and I have leaned on a lot over the years during moments of stress in various market cycles. He's got a great perspective on the rallies and the selloffs that make a market cycle. Back with us is Joe Saluzy, partner co head of equity trading at Themis Trading, joining us from New Jersey. How are you.

I'm great, Carol. Good to get the band back here. Like you said, quite the reunion tour of for the years.

We've had a lot of fun over the years.

Yeah, yeah, you know. I mean one of the things that I always love to talk to you about, Joe is market structure and trying to figure out what exactly is happening. So that's why I thought of you instantly this morning when we saw the Nick Hay down, you know, twelve percent overnight, and it was limited down a number of time, circuit breakers were tripped, and then this morning, you know, futures were hit much harder than the market had been on Friday, and we opened off more than four percent on the S and P more than five percent on the Nasdaq. And I'm just trying to wrap my head around what happened. Is this from the Bank of Japan because that happened on Wednesday and we didn't have a sell off then. But we're starting to hear about carry trains being unwound and it sounds very mechanical. On the other hand, there's a growth scare, right, So what is it? By the way, I'm looking at the wrong camera. Well, I have two cameras here and this is.

Not the right one. Matt, let's Joe talk.

You guys have all the reasons I've heard. I've been listening to the show during the day. They're all out there. People got a million reasons why. But you know, I think it's also liquidity shoo. And it's always been a liquidity issue when you get volatility like this and you know, bids disappear. We've talked about this years ago. When bids disappear and you know, sellers come in. And for instance, I was training a couple of small caps today for some clients, and I was buying, and you would think it would be relatively easy to buy, and it's not. It really isn't. It's still you know, the players into stocks. They're not necessarily individual stocks anymore. It's ETFs, it's indices, its futures, it's options, it's derivative based products. And I think that really is the problem. It exacerbates these moves really quick, and you get days like today when the bottom falls out for you know, any one of several reasons. And you know, it scares people at panics, people even a vix at sixty five pre opening and you're kidding me. I mean that was ridiculous. I think we closed like thirty eight. But I think it's people just get nervous, and it's that derivative leveraged effect that really drives it down.

I'm so glad you went there. I was looking at a Bloomberg Big Take story back in July about the twenty four hour stock trading and how it's booming and wall streets rattled. You were quoted in that store, and you said, and this was basically looking at retail investors and how they're making trades basically twenty four hours a day, five days a week, and you said, We're only going to have trouble in the middle of the night when things are so ill liquid. So okay, does that continue? What is I mean, how do you think about where the momentum goes from here or does this moment of continue?

Sure on that twenty four seventh thing, I think it's ridiculous by the way that individuals now there are certain areas you could start trading at ten o'clock at night on a Sunday night, individual stocks, which I think is absurd because there really is no liquidity and you're just looking for trouble at that point. You know, there are some caps of twenty percent I think up and down, but you know, for individuals. And here's the way I look at it. Also, the crypto market, which I made fun of for many, many years and I thought it was a joke, and I'd still think it's a joke. The equity market and the crypto market are starting to emerge together in this style of training. In this hey, let's just been it. Trade whenever we want, and we'll just zip it in and out. That's not the way it's supposed to work, at least not in the equity market. If the crypto guys want to do that, good look, But the equity market, you're supposed to have an opening and the clothes and there are these liquidity events throughout the day which helps set price, and you just don't have that right now.

What uh? In terms of what we've seen the unwind of the carry trade, and I've heard a lot about margin calls this morning as well, how long does that take to play out? How long do we expect this kind of volatility to stay in this in the equity market show?

I think today was excessive. I don't think you get to see that sixty five vix again. I not for this week. Unless we see some new news, you know, you'll get this. I don't think we're at the bottom here on this little correction. I'm going to call it a correction because I think that is what it is. I think these are normal corrections when you had a market that's been up so much throughout the year on kind of sketchy details. You know, let's talk about AI, right, I mean what's really going on there, right, But I think you got a correction. It will come down. You're not going to see that super volatility that you saw today. But you know, it's gonna take some time for this, you know, to kind of smooth out, and then we'll get the FED later on in the month of Jackson Hall and Brother May September and things will stabilize. So I'm not really thinking that this is a big downtrend coming. I think it's certainly something to be aware of and to be cautious of, but it's not nothing to panic about. Like Jeremy Siegel was this morning.

Yeah, I was gonna ask what about the emergency meeting, Joe, aren't you aren't you convinced that the Fed's gonna rush in and in a panic cut basis point cut rates by seventy five basis points.

They only do that when Wall Street banks are in trouble. We know that, Matt, right right now, I don't think you have that. You know, the banks are fine. It didn't seem like there's anything going on there. You know, when you're calling for emergency rate cuts, it's when there was a global financial crisis, right the GFC. We don't have that right now. We don't have anything like that right now. Everything's actually fine. We had one unemployment number which looked a little bit worse than expected. So no, there's no need to cut seventy anytime I think before the next meeting, I wouldn't be The Fed would look nervous. They would look like they were panic, and that's the wrong signal. Now they can get out there, start jaw boning and doing what they normally do and have a few speakers come out and say one thing or another. That'll be fine for the market, and they'll get going from there.

Joe, what would tell you that there is some stress in the market? Is it you know, watching financial market conditions? What are you know, credit conditions? What are you watching?

Yeah, when you look at some of those spreads and you know, Jill Good junk bond yields, things like that, and you're looking for particular spikes out there, really out of the ordinary, like that VIC spike. Nothing but to be honest, that was that was a bit scary in the morning. But you don't have that right now. So yeah, credit things are really the problems. Let's look back at two thousand and seven. Two thousand and eight, two thousand and nine, Right, that was all credit. It was all about the commercial mortgage backs. People have talked about it, but nothing really seems to be going on there. So I think at this point, yeah, there was some excessive valuations when it comes to equities, and some of the pees were getting a little bit stretched, which is why a correction is healthy. And but by the way, uh, the guy's over at Burinian Associates, they put up some good numbers and they wrote the average correction since nineteen eighty is thirteen and a half percent, and that lasts about ninety days. So you know, we're down about what he percent off the highs or whatever it might be. We're in a normal correction right now. So I'm not really worried if we start getting a little bit more fueled from there. But right there, I think we were okay.

And a rotation. Do you think people are done buying these megacap tech stocks and are gonna now look for you know, dividend paying stocks or smaller cap stocks.

That had started last week or a couple of weeks ago, which I thought was you know, it was underway. We were getting going, you know, the small caps the Russell was was finally moving. It's taken forever for that Russell two thousand and get some action, and you saw some money coming out, but you know, it kind of failed. It was nice to see that they did it. Bounce off the loads today, so you know, that was a bit scary when they were down there. But we bounced nice and we closed okay, which was important, I thought so. And you didn't get that. A lot of people were expecting what we call a dump at the end of the day, and you didn't get the dump at the end of the day. You kind of just stabilized where you were, So that to me is positive. I just noticed the overnight actually after our reaction was a little bit positive in the UNC So let's see. I think, let's not panic, but I don't think that, you know, let's not get food can place in either. We still got to worry a little bit.

Don't tell the rest of the guests, but we saved the best for last. But don't tell anybody, all right, Jesse Lucy, you're the best, of course, co head of equity trading over at them is Trading. This is Bloomberg, Joe, thank you.

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