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Welcome to Stocks and Translation Broadcasting from the New York Stock Exchange. I'm Jared Blicky, your host, and with me as always is the voice of the people, Sydney Freed. Now kindly like, subscribe, and comment on stocks and translation on Spotify, Apple Music, Amazon, or YouTube. Today we are welcome.Coming back Steve Soznick. He is the Interactive Broker's chief strategist, and we're going to be talking about the Trump trade, how it started, how it's going, plus a deep dive into volatility. Our word of the day is confidence. The consumer is losing it, but the hard data isn't flinching yet.And this episode is brought to you by the number 29.56. That is the most recent high of the VIX volatility index. What the March spike in decline means for stock polls. Just don't call it a fear gauge. Steve here will remind us why. And Steve, our last taping was literally right before the election, November 4th, and we were just kind of, uh, wondering what was gonna happen, and here we are, some stuff has happened. I, I,

I think what, you know, to sum it up, you know, what, what I would say transpired in, in, in the ensuing, what is it now, 4 months basically.Um, you know, I think there was a lot of enthusiasm that the new administration was going to focus on lighter regulations and, and be, be market friendly, um, and I think what we've kind of encountered over the last couple of months is that the administration's priorities are not the same as the market's priorities, and a couple of times they've, they've kind of had the opportunity to.Um, you know, intervene and say conciliatory things and really haven't. And so I think you've got, uh, you've got some spooked investors out there and, and, you know, a lot of the goodwill has evaporated.

So traders have gotten it wrong, I would say as usual. I mean that happens quite a bit, that's fine. But we want to get into our word of the day now, which ties into everything we're talking about. It is confidence and I think we all know what confidence means, but it's worth repeating here.just means how strongly people believe something will happen, and the emphasis is on belief. Sometimes beliefs affect behaviors and sometimes they don't. And in the current market context, we're seeing a lot of negativity in the soft data that would be the consumer sentiment, the consumer confidence surveys, but we haven't seen that really hit the hard data yet and we know the Fed is data dependent on everything. Maybe they leave.They lean towards the hard data, but how do you see this confidence, uh, working out right now? And I know you've written about this recently too.

Yeah, I,I started writing about this probably about, I think it was 4 to 6 weeks ago. One of the, the Michigan numbers which come out biweekly on Fridays. One of them started to, as it started to tick down, one of the numbers had a big jump in inflation expectations, and the one year in Michigan inflation.Expectations tend to track the price of gasoline at the pump reasonably well. It, it's not perfect, as you know, nothing is, but it's a pretty good relationship, and I have, if you go through my stuff on, on IDKR campus, you'll, you'll see I've, I've got that graph up there a few times. I think I put it on Twitter as well, various times, and they do track, but something went a little wonky there and, and the inflationary expectations ticked up without the price of gas moving.And it happened again two weeks after that and all of a sudden it's like something's gotta be something's gotta be gnawing at people. I do believe it was the tariffs. Now with consumer confidence, as you said, it's, it's soft data. I, I, I do think it's more important to consider what people are doing rather than what they're saying or thinking, you know, that's imperfect at best. But in the meantime, you also had the conference board come out with similarly.You know, unimpressive numbers. You also had a retail sales report that was, that was unimpressive in the meantime, and Walmart came out with, uh, I'm not gonna call it a profit warning, but a little bit of a, a little bit of cold water on the idea that the consumers were going to continue to spend. Now one thing about these numbers is there's definitely a political breakdown that that happened and sort

of Democratsversus Republicans saying I like this or I don't like this,

andit, it more or less flipped.Right after the election. So the, the going into the election, the Republicans were miserable and the Democrats were enthused about the economy. The election happened and basically you could flip them over, but itYou know, first of all, most people are independents anyway, but, but you basically had that flip and so that's where it didn't, it didn't change at first. And there were some people who said, oh, there's this political bias to it and you know, it's, you know, that that's what this is showing you. But the numbers now have, have started to show that that independents have joined with the Democrats and feeling gloomier and actually the numbers have started to slip among Republicans. I do think this tariff talk is getting to people. That's what's getting them nervous about inflation.And it's what's getting people, I think a little bit, it's on edge, and you think about how the market reacts. Anytime you see a headline with the word tariffs in it, the market, the market sinks.

So what do you do? What do you recommend to people that are seeing the headlines that are kind of contributing to this soft data that are worried, or do they have a right to be, you think, down the line? Should they kind of keep away from the headlines and look towards the harder data? Where should they take their cues from?

As with anything, it's, it's signal versus noise, and I think there's a lot of noise in all this, in all these data points, and I think it's, you know, one data point doesn't tell you very much of anything, and I think if you start, you know, overreacting to one, you'll you'll you'll freak out.Um, I think though, we, we need some clarity here and that's really what, you know, I, I, here's the crazy thing with investments and, and business. I think managements are very good at adapting pretty much to what any to whatever's thrown at them.You know, think about, think about like the various challenges that, you know, the, that, that corporate managers have had over the last few decades. Yeah, the global financial crisis was a little hard to navigate that one. That was too overwhelming. But COVID was a blip for most companies. They figured out how to adapt to it.And I think the problem you have now is people are not sure what the tariff situation is and companies aren't sure and the difference is you and I can move our investments around pretty quickly if you're a company you're planning months or years in advance, you're buying plant equipment. How do you, if you don't know what that's gonna cost, if you don't know what the lead time is, if you don't know the payoff on that investment.That's really difficult, and I think that's kind of spilling back into a lot of the market malaise right now.

Iremember in the early pandemic and also in the recovery, so I'm talking 2021, maybe even a little 2022, companies had withdrawn their guidance and so companies report their earnings. They said we don't know what the future is bringing and usually they're talking a quarter out, a year out. They just withdrew that guidance and the market reaction eventually with 2022 we saw this bear market, there were forces at work.Eventually that kind of mattered and to a lesser extent, we also saw that in the first Trump administration where we had some companies pull their guidance because they didn't know how tariffs were going to act, arguably it's a bit more severe this time because the tariffs are bigger and the threat is bigger. But how do you see this translating into earnings this time? Do you think companies start pulling their guidance? We haven't seen a re-rating. We haven't seen companies, uh, we haven't seen the rubber beat the road when it comes to expectations about companies' earnings just yet.

Well, remember, Jared, they're loath to, to reduce guidance, right? Like that's one of the surest ways to get your stock price clobbered.

So you want to do it when everybody else is doing it.

Yeah, you know, the word tariffs has come up more in terms of corporate presentations and calls, but, you know, if, if I'm, if I'm the manager of, you know, if I'm the CEO of insert company name here, I don't want to pick on one or the other. You know, if I'm gonna come out and say the tariffs without really any evidence.You know, the tariffs are gonna hurt my business by 10%. You know, the market hates to hear that kind of thing. The markets, you know, remember when we came into this year when everybody was so bowled up about market expectations, there were 13 S&P earnings estimates were called somewhere between 13, 15% higher for the year. That's a big number historically. And you know, so that was pretty much priced in. It hasn't been fully priced out.But I think companies are loathe to do that. And again, you know, it's, what are you gonna, you don't want to look like a dope by saying, by saying I'm gonna pull my guidance based on something theoretical that may or may notoccur.

But maybe something happens that gives companies cover like Jerome Paul comes out and says something definitively.Well, you know, this guy said it, and so we're gonna withdraw our guidance or all everything kind of comes to a head and it's so obvious that things are turning down, um, and maybe we're heading into a bear market that it becomes OK to, to put your neck on the line. Do you see that developing? Like, do you see a catalyst for that?

Even Jerome Powell basically didn't change his guidance. He, you know, when he came out, you know, the market was OK with what, with, with the Fed commentary last, last week, you know, we're taping this a week after the Fed, after the Fed meeting.The market was OK with it, you know, I think they were a little bit focused on the fact that quantitative tightening was shrinking, but, but theyThey don't want to go out on that limb either because it's such a, it's such a, um, it's such a it so there's so much room for interpretation. Literally as I was walking in, I haven't had a chance to read it. There was a headline that came out. One of the Fed, one of the Fed, uh, presidents, I believe, came out and said, well, wait a minute here, you know, the tariff effect might not be as transitory as people think. So you've got, you've got the Fed not providing any clarity.Which doesn't help investors either. Investors hate a lack of clarity and that, and that gets reflected in volatility and I know we're gonna talk more about volatility later, but, um, this is where it all plays in. If, if, if everybody's grasping around in the dark a little bit, we're we're all confused. Now, the, you know, the, the positive element might be that President Trump is known for being, you know, a, a bit of aYou know, a bit of a moving target type of negotiator. He, he believes that keeps, you know, whoever he's negotiating with on edge a bit so we can

see reversals. It's,

so which, which, but again that's volatility in and of itself, right? It could go, it could get better, could get worse. We don't really know. That's becomes very tricky. So

we don't really know how are you advising clients right now with what to do with their portfolios or their hedges they could be investing in.To kind of navigate some of this market volatility. Well, yeah,

I mean, you know, one of the things that I've brought up from time to time is don't fight the tape but insure against it. Um, and you know, that was, that was more of a bull market mantra and and you know, it worked really, you know, it generally worked pretty well earlier this year, uh, because, you know, at some point, it's always impossible to know when the market's sort of shooting up, you don't necessarily want to get in the way of that, but it was a good time to buy insurance.Right now, again, as we're taping this, Vick was about a 17 handle coming down from

you know our number of them.

Do I get like a little flag wave that the secret word um but basically, uh, you know, that that means that it's, you can, it's not necessarily prohibitive to hedge anymore. I, I would say don't overreact one way or the other. Stick to your plan, particularly if you're a long-term plan.Sydney, you're of the age where you can think much more long term than, than, than someone like me, let's say.Um, you know, the further you are from retirement, the more years you have left in your career, the longer your horizon can and should be, you know, over time, markets tend to go up. I mean, you, you know, you look at that chart, it's very steadily from left to right. There are blips, and a lot of the big blips that are scary as can be when they're happening over the, you know, over the, over that long period of time get minimized. So I, I, I think.What I like to say to people was, use the events of the last couple of weeks as a gut check. If you were really seriously freaked out by the way the market moved over the last couple of weeks,Then you're probably carrying too much risk. Or, you know, if you're, you know, remember that, you know, risk return, but I think people started to embrace risk in the hopes of returns without embracing the good side of risk but ignoring the downside of risk. If you made it through the last couple of weeks without sort of flipping out and just going, you know, this stuff can happen.And you're, and you're young, you know, and you don't need, you know, you don't need the money for, say, college tuition or, you know, or, or imminent retirement or something like that. Just stick to your guns and you know what, just keep putting money in your 401k and that'll that'll do far better for you in the long run.

Hold that thought. We got to take a quick break, but coming up we're gonna be talking about America's favorite gauge of 30 day volatility in the S&P 500. That would be the VIX.This episode is brought to you by the number 29.56. Uh, that's the most recent high in the VIX volatility index. It has since dropped to about 17 as of this taping. But let's talk, Steve, about what the VIX means for investors, and you broke it down in a recent episode of why it's not a fear gauge for us. We did that last time. It's a measure of expected volatility over the next 30 days, uh, but when it goes up a lot, that's oftentimes uh.Coincident with fear. And how do you, how do you think about this and how do you, how do you, because you come from the world of options. So options people tend to love volatility. Other people tend to be scared of it, but how do you embrace the VIXs?

You, you hit upon the key point, you know, it's, it's not specifically a fear gauge. It doesn't measure fear. We went into that in the last podcast. I encourage everybody for a more in-depth look, go back at that one, butIt does, it, it can be and often does act as what I would say more a proxy for the a proxy for institutional demand for hedging protection. And so because remember where the VIX comes from, it's based on, it's based on, it's based on S&P index options with a, with roughly 30 days to exploration as you mentioned. Some they use options between 23 and 37 days to exploration.That's pretty much the province of institutional investors. Not retail does trade those things, but retail has been very active in in S&P index options, but they've tended to be, uh, the very, very short, very short dated, yeah, 0 DTE as we say, or, you know, a week or less. So once you start getting into the 30 days.That's, that's, that's becomes the province of institutional investors and the VIX itself, because it has a whole complex complex of its own options and futures, the futures are very, um, very much driven by institutional demand. And by the way, it's very important to remember options price off the futures, not the spot, which when you get very crazy option mark VIXs markets, a lot of times people go, oh, you know, VIXs went from 20 to 20, you know, went from 20 to 29.And yet I was holding the May options and they didn't go up anywhere near that. It's because the May futures might have gone from 20 to 23.

That brings up a very important point, which is that you cannot trade the VIX, like you can't trade the S&P 500 strictly speaking, but we have some great proxies. You have the spy ETF, you have other ETFs, uh, you have the futures, and those pretty closely track the daily movements of the underlying. But with the and I think that happens because with the S&P 500, you can buy the 500 stocks that make it up and you can emulate that. You can recreate it. You can't do that with the VIX.Because we're talking about, as you said, those options 20, all of the options in the S&P 500 from 23 to however 30 something days out 3 to 37. Now that, that would just be impossible to buy all of the underlying so you can't actually trade anything quite close to the VIX. Why do we pay so much attention to it?

Because it is, because number one, it is viewed as the fear gauge, and number two, it really does, it really does have some, some.to it. It has value to it. So when you see VIX jump from 20 to 29.56%, that is telling me that there is a big demand among institutions for hedging protection.Now what institutions will do is over time that VIX is a very good short term hedge. Over time institutions, they, they can't, you know, we just discussed, I can, you know, I could basically move my portfolio, we can move our portfolios quickly. If you're managing billions of dollars, you really can't. You know, you're turning around a battleship. And so what happens there is, you know, VIX is a good short-term hedge against that sort of first move, which is why in 2022, you saw.spike a lot early in the year and then later in the year it calmed down because the institutions had basically moved on. They, they, they went to lower beta stocks, they raised cash, etc. etc. all the strict, all the more defensive moves. So they didn't need VIX as much. But one of the things I watch is VIX's Futures. It's kind of a little difficult to do, um, you know, but if you can find a way to do it, I, I don't know if Yahoo Finance should.

We have Futures. You can definitely, I, I used to day trade, uh, S&P futures, the SPUs, and I would use VIX Futures as a guide. I didn't trade them, but I used them as a signal, uh, to kind of, uh, inform my

short term trades. And so from a very wonky point of view, when you look at a futures curve, if you graph out all the futures by by exploration, typically when you look at that curve, it goes from bottom left sort of curving toward higher at the right.That's called contango. I don't know where the term comes from. Don't ask that. That could be our term of the next, next time we'll we'll look into it.When, when it flips around, that's called backwardation and backwardation means that there in the short term there's an imbalance of supply and demand. There's more demand for the given com for the commodity in question.

You see that in crude oil futures. There's a, you know, there's a supply shock. Somebody blew up an oil refinery in the Middle East and then suddenly the term structure gets backward.

Oil is theClassic one that that tends to spend a lot of time in backwardation. Vicks tends to not spend much time in backwardation except when you have extremes and that to me is that to me is basically somebody somewhere is saying get me out or get me protection, and I don't care what I pay and I'm gonna, I'm gonna distort the normal relationship between supply and demand to get that protection.And that's what we saw when Vicks spiked. We saw it extremely the case in August when there was the Japanese yen crisis, you know, the, the yen carry trade blowing up, because that was really institutions, you know, getting hedge funds, leverage institutions getting way off now. And now this was.More just this didn't get as crazed because this was more just bigger investors but not necessarily that same sort of panic, uh, but definitely we went into, we went into backwardation. Now the curve is when I, when I looked, I haven't looked this morning, but it was yesterday it was more or less dead flat.And that's not quite contango, but it's also not quite, not quite, uh, you know, that panicky sort of trade.

All right, we got to get to our runway showdown here because the lights are blazing, the cameras are locked in. Wall Street is known for its clever sayings, and today we are on the hunt for the perfect Wall Street adage, that timeless phrase that captures the current financial mood like it was made for this moment. TheQuestion which classic look wears 2025 best. Now first down the catwalk, we have a confident silhouette buying the rumor in bold cuts and speculative speculative fabrics just behind a rival looked in the structured tailoring is already selling the news, cool and composed. Then there is a daring number attempting to catch a falling knife, all sharp edges and dramatic risk. A whisper.Spreads throughout the room, the trading floor that this time is different, but seasoned crowd, the seasoned crowd rolls its eyes. The trend is your friend echoes from the rafters until it isn't, and backstage, the Fed lies ever watchful because on this runway, don't fight the Fed isn't just advice. It is the dress code. So Steve, which one of these time-tested truisms takes on the financial zeitgeide the best, and ifYou need to go off script, that's fine too.

I'mgonna go off script on this one. Well, first of all, my favorite fashion-related Wall Street adage was one of the first things I was taught when I started at Solomon Brothers, which was dress British, think Yiddish, talk sports. But, but that doesn't necessarily apply in this case. But what I will say here is, um, I'm gonna say bulls make money, bears make money, pigs get slaughtered. And that means.Don't, you know, if you, if you're a trader or if you have a short term time horizon, take your profits. You know, don't, don't let things run. And we did see a lot of people trying to catch the falling knife in the last, in the last couple of weeks, which is, you know, don't try to catch a falling knife, and the other one is like dead cats don't bounce, but these, this, we didn't have a dead cat that did, we did get a bit of a bounce. But these are, you know, I'm gonna say that, you know, don't.Be nimble, you know, so for example, I think a common mistake is people say, I bought the stock atYou know, 40 and it went down to 30, it went down to 30 and now it's back at 37, but it doesn't really feel like it's gonna get back to 40. People, it's human nature to hold on till 40. Don't. The, the market is telling you, you know what, you, you, you did it, it didn't work, so be it. Or the flip side is you bought it at 40. It went to 52. Great.And you think it's gonna go to 55, but yet it's just can't get through $52. It's hitting some big resistance. Do you hold out to 55 and risk it going back, or do you take your $12 profit?And move on. So that's the Bulls make money, the Bears make money, the pigs get slaughtered. Love it.

I feel like for average investors, by the time you figure this out, it's already gone. The opportunity's gone. You just got to get in. Well,

no, see, this is the thing. It applies that that applies that applies no matter what your time horizon is. It applies if your time horizon is, is, is 5 minutes.It applies to whether your, if your time horizon is measured in years, you know, you, you, you go in, you constantly have to be monitoring whatever your investment or your trade is, you know, if you don't do that, that's, that's just, you know, you, you're putting on a blindfold and, and be and, and willful ignorance and that, that benefits nobody. But what it means isYou know, you, you can go in and you could buy, you know, certain stocks and say this is, you know, this stock is working phenomenally for me and, and it's been working and a lot of times you don't, you know, it, it's human nature. You're not gonna sell it while it keeps going up. That's the don't fight the tape thing. But you know, things pause or things pull back, you have to then decide does, is that pull back a buying opportunity?Or is it a sign that maybe, you know what, I, it's run its course and, and, and there is no, there is no unique answer to this, but you know, another adage is no one ever went broke taking a profit.

On that note, we've got to wind things down here at Stocks and Translation. Be sure to check out all our other episodes on the Yahoo Finance site and mobile app, also all your favorite podcast platforms. We will see you next time on Stocks and Translation.