Macro Gives 'Gut Check' to Stock Market, Tests Key SPX Levels

**Sam** (0:00)
All right, it's time now for the big picture. Let's welcome in Joe Mazzola, Director of Trading Services over at Charles Schwab. Good morning to you, Joe. So it looks like the seasonal aspects of September and full force here, but it really feels like it's oil and yields that seem to be, I guess, testing the rally right now. What's your read?

**Joe Mazzola** (0:18)
Yeah, Macro, it's getting a little bit of a gut check today, Sam, you know, it's not one stock, it's not one sector that's driving the tape. As you mentioned, it's oil, it's yields, they're moving higher. I think if you look at the sectors right now, they're about split 50-50 versus down. I think one of the bigger issues, though, is that as you look at something that, I think you and I have talked about this before, some of the dispersion index, where it shows what traders are willing to pay in terms of volatility for individual sectors or individual stocks relative to the index, that dispersion is way down, and that basically means this, it's just you're not seeing, you're not seeing certain sectors or certain stocks that you can kind of hide out in, right? You know, that are showing a lot of outperformance, that are showing their ability to kind of move separate to the market.
We're at kind of this intersection now, where this dispersion is going way down. So, you know, a sell-off leaves kind of fewer places to hide. I guess the one saving grace of that though, Sam, is that, you know, if you're somebody who employs some hedging strategies, you can use index options, you can use ETF options as a way to kind of mitigate some of that downside risk because of the fact that things are moving more in unison now.

**Sam** (1:36)
Okay. So we've got a bit sort of closer to 16 for us this morning. I mean, how are you looking at things into the back end of the year as I'm speaking to my last guest about? I mean, you know, we're pricing and it seems a lot of uncertainty as to, you know, some of the, I guess, concern or at least interpretation of the worry in the long end of the yield curve, what Treasury's been up to. Obviously, they've been making a little bit of noise around dollar yen this morning as well. We head into a midterm, we head into a big bilateral between the world's two biggest economies as well. What are you watching?

**Joe Mazzola** (2:09)
You got a full murderers row of things to kind of keep an eye on there. But what's interesting, Sam, is that, look, you're not seeing big moves in the VIX. Yeah, you mentioned the VIX is at 16, but that's, I mean, if anything, that's kind of a middling level considering, you know, all of the, all of these variables that are coming to the market within the next couple of weeks, or that at least are affecting the market right now. So, yeah, like I said, I don't think it's a bad idea to look for maybe some of those downside hedges as a way to protect some of that volatility in this environment. Now, that being said, you know, there still are plenty of areas where you're seeing our performance, whether that's energy, you're seeing it in healthcare, you're seeing it in financials. It's really more of the interest rate sensitive sectors. Utilities, real estate, industrials. Why? Because the cost of borrowing for them is very high. Or technology. And that's really just because, you know, are people willing to still pay for future earnings when you have interest rates pushing up where they are? There's more competition, right? There's more competition from other sectors and there's more competition now from the fixed income market because people that are looking for a little bit more stability, I guess, if you will, you know, might say, I don't know if I want all of that beta from technology when, you know, I have the ability to clip a coupon at 4.3, 4.4 for the next two years. So, you know, these are things that investors are balancing right now.

**Sam** (3:35)
Yeah, and as Jake Dollarhide pointed out, I mean, you know, he's buying some of this corporate debt as well, as we mentioned. I mean, that's competition for treasury, it's competition for equities as well.
What levels are you watching? Because obviously we're entering the so-called like hurricane season, I guess, for stocks being that September seasonality. Obviously, given what we saw in May, given what we saw in July, I mean, we sort of take that as a trend rather than a guarantee. But I'm just wondering, as we enter a new month with, I guess, a lot of unknowns here, there have been a lot of expectations for a pullback before a sort of year-end bounce.