Bloomberg Audio studios, podcasts, radio news. The S and P five hundred just had its best first quarter in years, and that's thanks in large part to the strength of a familiar group of names, including Nvidia, Meta, and Microsoft, big tech companies that are investing heavily in AI. Shares. Of Nvidia alone, we're up more than eighty percent.
There have been over twenty records posted by the S and P so far this year, and that's on top of already at the end of last year the fourth quarter being incredible.
That's Carly Wana. She covers the stock market for Bloomberg and she's been chronicling this record setting run. But now the investors she's been talking to are trying to figure out what will happen next. Will the market continue to soar to new heights or will it come crashing down? And one indicator they've been watching and Carly has also been paying close attention to, is something called the VIC. It is the volatility index.
It is oftentimes thought of as the fear gauge.
For a while now, the VIX has been pretty low and indication there hasn't been much investor anxiety. But in the last couple months Carly has spotted something striking. Average daily call volume on the VIX has started to rise.
People are buying more VIX call options, so basically positioning for potential advances in volatility.
Investors are buying market insurance to protect themselves, not for a conventional correction, but for something bigger, a potential black swan event. So should we be worried that traders are preparing for the possibility of a big downturn? Today on the show What's driving Markets to all time highs and what the VIX tells us about what investors think will
come next? From Bloomberg, this is the big take. I'm David Gerret Carty Wana says, while the market gains we've seen aren't particularly surprising, what's been interesting to watch is how big they've been.
Going into the year. The expectations were good. Markets have been really propelled by those artificial intelligence stocks. That's still the case, although not necessarily as extreme as it was at the end of last year, But it was also based off of this hope and this expectation for when the Federal Reserve would start to cut rates, and honestly, the expectations for that have been pretty dashed. For when that's going to start happening, and that's been pushed out
and pushed out. Yet despite that, markets have still gone up, and they've gone up quite notably, and a lot of it does, in fairness, come from really strong earnings that have held up. So evaluations are high, but they're not, by some measures, at least completely overstretched and over extended.
You mentioned those artificial intelligence stocks, So these were what were known as the Magnificent seven. And I'm going to test myself here. That's Alphabet, Amazon, Meta, Microsoft, Apple, Nvidia, and Tesla. Did I get all of them? I think you got all of them. I remember last year when they were doing so well, there was a lot of commentary about how we needed to see that rally broaden. Has it broaden more?
Yeah, it's gotten better. It's still a megacap market. The momentum trade, which kind of buys stocks that are outperforming, is still going well, and that's still kind of taking off. However, we included in our story that at any given trading session, about seventy percent of the S and P five hundred was moving above its two hundred day moving average. So that is pretty significant, especially with what we were seeing
last year. And also I'll note that the SNP beat the NASDAK for the quarter for the first time since twenty twenty two, So in twenty twenty three the opposite held true. NASDAK beat SNP for each quarter.
What does it tell us when we see the S and P besting or.
Beating the Yeah, it tells us that investors are buying something aside from Nvidia, which is exciting for the other companies, not to say they're not still buying in Vidia. And I would say too that the magnificent seven stocks that you touted, they're stoo doing very well, but there's been a little bit of more idiosyncrasies within that group. Tesla, for example, has not been as high of a performer. Apple actually has had a pretty tough year so far
from twenty twenty four to now. But I would say that it tells us that people are looking aside from those mag seven names and putting money elsewhere.
Could you situate that market performance in this broader economic moment? So I'm just curious for what makes this good environment for yes, these six seven stocks, but more than that, why this seems to be such a good moment for stocks right now?
Right so the economic data actually has come in pretty pretty strong. That's something that's been talked about a lot. But I mean, jobs are doing well, inflation is coming down. There's been some surprises here and there, but the Fed's preferred inflation gauge, which came out on Friday, actually came in. It came in in line with expectations, So that's a signal that you know, inflation is cooling to some degree. That could also help the Federal Reserve cut rates on
the timeline that people are holding up again. Jobs has been a very strong indicator for people of the job market as holding up, and of course also we have factory manufacturing data that by some measures really is coming in quite robust. Now, the hard part is in markets, data that's strong can fluctuate between being good news and good news in the sense that yay, the economy is doing good, or good news is bad news because oh, the economy is doing good, when will the Fed be
able to cut rates? So it moves back and forth, right, it's kind of a double edged sword.
There's still a lot of optimism about the economy and where the market will go next, but there's always the chance of a serious downturn, the break will dig deeper into the data that suggests Wall Street is getting more
concerned about a bigger correction. I've been speaking with Bloomberg reporter Carly Wana about how a record setting first quarter for the S and P five hundred has left investors feeling unsure about the market's trajectory, if stock prices will continue to climb, or if the engine driving those gains will sputter out or come crashing down. One way of reading the tea leaves is an index called the VIX that fear gauge. When you look at the VIX, now,
what is it telling you? What's it telling investors about that level of anxiety or fear in the market right now.
So the kind of longer term answer to that is the idea that VIX has been uncharacteristically low for some time now. There are a suite of reasons and a suite of opinions on why that is. However, what we noticed on VIX is that while it is incredibly low, there are signs that people are positioning more for potential
tail risk events. So what that means is that within the universe of hedging, you can hedge for you know, something minor like a small pullback in broad markets, or you can really hedge for things going you know, more drastically wrong. Recently, people are buying more VIX call options, and that would signal that people's fear about an event knocking stocks and causing a pickup in volatility has increased.
Of course, the caveat is that people positioning around VIXED, if not necessarily, always mean that things are going to go bad. But if we're going by that traditional relationship of VIX and high readings of it signal fear, then people buying call options tied to it would signal that people think that there is a chance, or feel it worth at least protecting against the idea that VIX will in fact go up.
So I'm going to synthesize that and correct me if I'm wrong. Yes, you have people betting on or buying insurance for something big, a black Swan event, but not for kind of a run of the mill correction or a small pullback.
Is that right? Yes?
And I think too.
It's important to note in this, and our story got at this, but part of the reason why the increase in hedging for tailorrist events is interesting is because of the way that that relates to how people are hedging broadly, which, like you said, the demand for hedges is just really really low right now, and it has been so the fact that people aren't positioning so much or buying insurance so much for a regular shregular old draw down and the s and P. But they are increasingly relative to
the six months prior, in the six months at the end of twenty twenty three, buying more contracts that would protect them in case things, you know, actually go wrong. To some extent, that relationship is interesting, and that relationship was kind of the crux of the story that we are trying to get at.
For your running the mill investor someone who's not involved in the options world, how much does this matter? Is it worrisome that you have people betting or getting insurance for a dramatic incident that could.
Perhaps come, You know, I would honestly say that the buying of tail risk insurance it's picking up, but it's not like it is incredibly pronounced or incredibly extreme, and it's not like people are preparing for a complete and utter disaster. It's more the idea that you know, professional traders and people who manage a lot of money are increasingly positioning for that, but are not necessarily increasingly positioning
for a regulation year old draw down. And again I would go back to the you know, what we were saying earlier is that S and P five one hundred visit all time highs. It has broken more than twenty records in the last three months, and there are not any signs that that is necessarily going to go immediately awride. There hasn't been a data point or there hasn't been an earnings collapse completely, So I would say, you know, do with that, which you will.
But we are at this moment when some investors believe it's prudent for them to take out more insurance.
Look, I guess that the real takeaway here is options have become increasingly important as something that not just large institutional players use, but a lot more mom and pop investors are starting to use these contracts for a variety of reasons, whether it's hedging or speculating, or some sort of mix of both. But I think the interesting thing that you can always glean from options markets is that
it's positioning. So stocks are interesting the extent that it's happening right now and The question is what will they do and what's priced in and options are You know they're equity derivatives. They're contracts that literally tell you what people are betting on or positioning for in the future.
This is The Big Take from Bloomberg News. I'm David Gera. This episode was produced and mixed by Alex Sagura. It was edited by Caitlin Kenny and Eric Wiener. Our senior producer is Naomi Shaven. Elizabeth Ponso is our senior editor. Nicole Beemster Bor is our executive producer. Sage Bauman is Head of Podcasts. Thanks for listening. Please follow and review The Big Take wherever you listen to podcasts. It helps new listeners find the show. We'll be back tomorrow.