Matt King on the Hidden Forces Driving the Market Selloff

Joe Weisenthal (0:02)

Bloomberg audio studios.

Tracy Alloway (0:04)

Podcasts, radio, news. Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:23)

And I'm Joe Weisenthal.

Tracy Alloway (0:24)

Joe, it's my favorite time of year. It's August.

Joe Weisenthal (0:27)

I didn't know that. Why is it your favorite time of year? I like August too, I love summer, but what's your reason?

Tracy Alloway (0:32)

Well, actually, it's exactly that. I love summer, but-

Joe Weisenthal (0:35)

This is why we get along.

Tracy Alloway (0:37)

There's an added layer.

Joe Weisenthal (0:38)

Can I just say, I don't like people who have favorite seasons other than summer. I'm skeptical of that.

Tracy Alloway (0:43)

You know what? I used to be-

Joe Weisenthal (0:45)

I judge people.

Tracy Alloway (0:46)

Okay, that's fine. I used to be exactly like that. However, I found that as I've gotten older, I've kind of come- maybe as I've gotten older and acquired a house without air conditioning, I have also come to appreciate winter a little bit more. Okay, I didn't actually mean to start talking about the weather, but there's another reason I like August, which is I feel like that's the month when weird things in markets start to happen.

Joe Weisenthal (1:09)

Yeah, August through October feels like that's the three-month stretch where anything can happen.

Tracy Alloway (1:15)

Yeah, and August especially, people are on their mandated two-week leave. If you're a professional working at a bank or something like that, you have to go on leave for, I think, two weeks or something like that every year. There's lots of illiquidity in the market, so tiny little things can end up having a big impact. And I feel like August is when you get some of those strange market moves. And speaking of strange market moves or at least dramatic ones, in recent days and weeks, we have seen some interesting stuff happening in the market that has been different to the pattern that has played out for the past year or so.

Joe Weisenthal (1:58)

Totally. First of all, we've had a little bit of weakness. We've had a little bit of rotation that people are talking about. Some of those red hot tech stocks have come down. We're seeing a lot of moves on the curve. At the time we're writing this, the 10-year yield is back below 4%.

So I was just saying in the Odd Lots Discord, which people should go and subscribe to and hang out, I literally said this morning, macro feels like it's kind of getting interesting again.

Tracy Alloway (2:24)

Absolutely. Both macro and markets, I gotta say. And there is this ongoing conversation about how much of what is happening in markets at the moment is technically driven. So, you know, maybe some of those pod shops having to cut some positioning versus people actually reacting to changes in the macro outlook. And I should just say we are recording this on August 1st, the day after the Federal Reserve meeting, where as expected, they didn't cut interest rates, but they certainly telegraphed an upcoming cut. So lots going on there as well.

Joe Weisenthal (2:57)

And the day before recording this day before non-informed payrolls. So by the time you're listening to this, we'll know a little bit more about the labor market.

Tracy Alloway (3:05)

Yes, we will. So there's a lot going on. It's August. There's the potential for even more stuff to happen, weird stuff sometimes. And I have to say, when it comes to diving into the intricacies of the market and what's going on there, there's a person that I very much like to speak to. We've had him on the show before. It is Matt King, formerly of Citigroup, and he's now started his own research shop. It is called Satori Insights, and he is the founder and global market strategist over there. So we're going to talk to Matt about what's going on in markets, what the outlook is right now. Matt, thank you so much for coming back on Odd Lots.

Matt King (3:45)

Thank you for having me. You're much too kind.

Tracy Alloway (3:47)

Well, we are very excited to be speaking to you again. There's a lot that's happened since we spoke to you last. I think it was in maybe in March of last year. Talk to us about what's happened. So you've set out on your own. You have this new thing called Satori Insights. What are you doing over there?

Matt King (4:07)

I'm doing more or less what I was doing previously, which is trying to explain what markets have done and what markets are going to do, and generally doing it in a rather different fashion from everybody else as far as I can see. I love your description of August. In my experience, either nothing whatsoever happens or as you say, quite big stuff happens. But I think that the biggest puzzles that I see people wrestling with at the moment are, frankly, making sense of what markets have done year to date, and that's the context in which you need to see the change now. Because on the one hand, yeah, the economy is much stronger than everyone was imagining. But on the other hand, markets have really done much, much better. Yeah, there's the whole AI story, but it feels as though it's more than that. I think the biggest puzzle is why financial conditions have eased so much, even as we've had ongoing QT, even as we've had rates at 23-year highs. In fact, it was the main thing I was missing in the FOMC last night. Nobody asked Jay Powell about how they considered this easing of financial conditions on one of the Bloomberg financial condition indices just a couple of months ago. We were showing easier conditions than 2007 I think you need to get your head around what's been driving all of that before you can then come back and think about the outlook and what markets are doing at the moment. All right.