Everything in Markets Is Now Moving Incredibly Fast

Odd Lots

The episode explores the unprecedented speed of modern market movements and news cycles, characterized by a 'compression of time.' Guest Luk

Key takeaways

• Market breadth is currently at levels reminiscent of the dot-com bubble peak, with very few stocks trading above their 200-day moving average.
• The 'AI impulse' is acting as a singular driver for growth, specifically through massive CapEx from hyperscalers and hardware providers.

Main topics

• AI CapEx and Hardware Trade
• Market Breadth and Dispersion

Notable quotes

Markets are really crazy these days.

Conclusion

The market is currently defined by extreme velocity, where the massive

Transcript preview

Speaker 2 (0:00) There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets, fast. That's the Barclays Brief podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts. Speaker 1 (0:25) AI is entering its most consequential phase where scale, safety and sovereignty will determine who leads and who lags. Join Bloomberg Tech in London on November 2nd and 3rd as global leaders across business, finance and policy examine the defining trade-offs shaping the future of AI. Thank you to our presenting sponsor, Salesforce, and supporting sponsors, IDA Ireland and Schneider Electric. Learn more at BloombergLive.com slash Tech London. Speaker 4 (0:54) Hey, Odd Lots listeners, the Odd Lots tour continues and our next stop is in Chicago. Speaker 2 (0:59) That's right. Joe and I will be at the City Winery Chicago on October 15th for a live Odd Lots recording. Tickets are on sale now at Bloomberg.com forward slash Odd Lots. And Speaker 4 (1:10) of course, a special thank you to Barclays for supporting Odd Lots Live. Speaker 2 (1:14) So that's October 15th at City Winery in Chicago. Get your tickets now. Speaker 3 (1:22) Bloomberg Audio Studios. Podcasts. Radio. News. Speaker 4 (1:37) Hello and welcome to another episode of the Odd Laws Podcast. I'm Joe Weisenthal. And Speaker 2 (1:42) I'm Tracy Allaway. Speaker 4 (1:43) Tracy, this, it dawned on me the other day. The market's kind of crazy right now. No, no, it's like seriously, it's like we're sort of used to all this stuff and everything and that. And then one day, one moment, I realized, oh, markets are really crazy these days. I would Speaker 2 (1:58) say weird. I find them very weird at the moment with like the biggest tension being what's happening in the bond market and the stock market. By the way, I have a huge caveat for this episode, which is we're recording this on September 29th. I've been away for the past week on vacation. I probably should have put up my normal going on vacation warning so something is about to blow up. Turns out it was the bond market. Speaker 4 (2:20) Yeah. Actually, it's funny you say that because the way I think about the market right now is so much is happening and nothing is happening in the specific sense that it's like, okay, we're in the middle of a war. with Iran. Speaker 5 (2:33) And Speaker 4 (2:34) so many, we're just like, oh, it's just this headline. Trump says negotiations are going good. And then it's like people move on. There's some crazy model leap, et cetera, by one of the AI companies. Huge news, but also so regularly cadenced now that even that almost becomes noise. Obviously, the movements in the bond market, I guess, like that is probably the one thing that does feel. about maybe just the last few weeks. But even there, a lot of that angst has been going around a long time. So it's like, there's so much of everything. There's no one thing that just, you know, I was thinking, Speaker 2 (3:11) like Speaker 4 (3:11) yesterday, September 28th, it was announced that David Zervos was going from Jeffries to Trevor. I saw Speaker 2 (3:18) that. I was in Connecticut with no electricity and even I saw that. 10 Speaker 4 (3:22) years ago, if that is announced. That would be like a really big thing people talk about. People would have been, all this stuff, and it barely broke through. But that would have been a time where that would have been the biggest sort of market-related or Wall Street-related story of the day. Speaker 2 (3:37) It feels like stock markets are sort of overwhelmed and or inured to everything happening except trying to make money. Speaker 4 (3:45) No. Speaker 2 (3:46) Like, that is the one impulse that remains. That never gets old. Speaker 4 (3:49) No. That's arguably the point of the whole thing. Anyway, we need like a sort of big rambling state of the markets episode. And we really do have the perfect guest, someone who used to be our colleague here at Bloomberg. We are, of course, speaking to Luke Kawa, head of markets at Sherwood News. Luke, thank you for coming back on Odd Lots. Great to be here. Thanks for having me, Al. Let me start on something niche, actually, because there's so much going on. Suddenly, lately, markets are having a great year. S &P up over 12 % or about that as the time I'm talking. I see a lot of talk about breadth. Everyone's talking about market breadth these days. Speaker 5 (4:25) What's that all about? Yeah, I think why they're talking about breadth is because it's absolutely god-awful. There's been a lot of different stats to show it. You can say the average stat is XYZ, below it's high. Well, the S &P 500 is, you know, as of writing about, you know. 1.5 % off of its high. The one I came up with that bothered a lot of people the other day was coming into this week, the S &P 500 was 0.5 % off record high and just 51.2 % of stocks were above their 200 day. Last time we had that proximity to a high with that few stocks above the 200 day was literally the day after the dot-com bubble peak. So that gets a lot of people mad, but then you have to point out, okay, wait. breadth was also that bad in 1998 market ripped for another two years after that so it really is a case of and i think to unify a lot of what you were talking about in the intro is the market inert to higher rates no a lot of the market isn't yeah the sb500 equal weight certainly isn't the russell 2000 certainly isn't however basically the to me there seems to be just this big bet that the AI impulse will continue to eat and swallow the world until who knows what puts a stop to it, whether that's kind of credit conditions, the capacity to lend, whether that's regulation. But right now, the pricing to me just looks like more and more betting on a singular factor to be able to drive growth. Like, think about it. When's the last time that there seemed to be more confidence in European industrials than the U.S. consumer during a period of strong growth? I cannot. ever remember that happening outside of maybe like euro boom what was it 2017 for a couple months i Speaker 2 (6:01) mean it is true that in higher rates so rates are a blunt tool for the fed right and they're gonna hurt something like a home builder a lot more than an ai company that is issuing like mega deals into the bond market, I would imagine. Is it the case that maybe the bet on AI makes sense in that environment? Maybe the AI companies are the ones that are less rate sensitive than a lot of other businesses out there. Speaker 5 (6:26) I think right now that's a perfect encapsulation of conventional wisdom. To me, it's also very interesting that as we've had this latest explosion higher in yields, and we've talked about like, oh, it's the AI impulse this, that. It's also come at a time where hyperscaler credit spreads, none of them are at their wides of the year at the long end. Speaker 4 (6:46) Yeah. It Speaker 5 (6:47) comes after September of you can tell me how much USIG and USIG issuance there was by hyperscalers. I believe that's Speaker 2 (6:53) a Speaker 5 (6:53) zero for September. So it's yeah. So very, very interesting. They cut back a lot because Speaker 2 (6:58) they got a little bit spooked with the CapEx response from the market. So Speaker 5 (7:02) that to me is something that like, hey. A lot of this in the bond market, both the response to stronger growth and the potential for issuance, a lot of this is like the classic Mark Dow belated overreaction to something we've been thinking and talking about for a long while. And then I think the question is, how long can the cyclicals that are doing well, operationally at least, how long can you... they be plumbing 52 week lows, a lot of these. And is it just because AI is doing so well? And I think that's the kind of important part to be making, the important point to be making that so much of this market has been dispersion. Helene Meisler calls it the either or market. I've called it, you know, the Elaine George market, Jerry's friends, only one can do well at the right time. But that's been a really, really defining trademark of 2026. At first it was semi-software. I think more recently it's been like this idea of inertia. stocks versus the general AI beneficiaries. And that to me is a bit of an important twist. It's this idea that it's not just one layer of AI that benefits, it's multiple layers through. through software, through the hardware providers that get to benefit from an impulse like Muse, like agentic commerce, and then others that get hit. So that to me is at least a bit of a nuance in how the market treats AI and the impulse. But for me, it's just really a sign of the mechanics that have continued to dominate and just continuing to play out. It's interesting. I looked up a Speaker 4 (8:27) chart of McDonald's and... That was doing really well up until, and then it peaked on March 3rd, and then it's been straight down. So it's like basically when the Iran war started, that was- Speaker 2 (8:40) Wait, was that when the CEO ate- Oh. Reluctantly ate part of the cheeseburger? I Speaker 5 (8:45) forgot Speaker 2 (8:45) about that. Speaker 4 (8:46) But it's just like any consumer name you can think of right now. The stock is awful. Nike is the classic example. That's crazy. That was $180 stock in 2021. It's $35 now. I mean, granted, it had a huge run-up in 2021, too. But any just sort of regular business, they're just doing terrible. It's Speaker 5 (9:09) crazy. And when you look at Nike, one of the things that stands out, and I think you could apply this more recently to a Walmart, possibly to a Costco, and I'll tie this back to software, oddly enough, but these were relatively expensive stocks that didn't have exceptional top line growth in a world where nominal growth has been accelerating. That's been what the bond market move is about. That's what stock market resilience is about. Why do you want to own those stocks? Why do you want to own the stocks that aren't growing that fast, that are expensive, when everything else is growing very fast? So I think for what happened for a while is that a lot of these consumer names, Walmart and Costco in particular, they were stand-ins for the software stocks that were bound to be disrupted by AI. Because if you think about it, if you're going to spend a certain amount at Walmart every month, that looks to me like an ARR. kind of revenue profile that you've got there. Costco is literally a subscription kind of membership in a lot of ways. So I think that was a stand in for disruption fears. And as software has come back, you've seen kind of multiples there deflate. So I think it is we got to find someone to punish. Maybe it's just because everyone's very invested. But when AI is doing well, you got to find someone to punish. Speaker 2 (10:18) What about just in terms of pure earnings expectations, what we're seeing here? Because this is the other thing that's that. in theory should be happening, which is you hear about productivity gains from AI. You should be seeing people get excited about the possibility of cutting labor costs. I don't know, coming up with new products with AI or whatever. And in theory, you should be seeing that go into the earnings estimates for future years. Are we seeing any of that? I Speaker 5 (10:44) would say in theory and in practice, what we continue to see more of is the AI hardware impulse as just the straight. Fuel for earnings. Goldman had a good note released a couple of days ago where they said about half of earnings growth this year is expected to be just driven by hyperscaler CapEx. So pretty, Speaker 4 (11:01) pretty big impulse. We're talking about how strong growth has Speaker 5 (11:04) been. Earnings growth has been this year. And, you know, you can just link it and distill it just down to that one factor. And then also, if you look at, OK, they also ran in a separate note. What do we think explains multiples across Russell 1000 stocks? And the answer they came up with was more so than usual. It's three years forward sales estimates. Right now, the one year forward sales estimates and those revisions have almost no explanatory power. So sales growth right now and for the near future, it's priced in. We all