Why A Longtime Bull Just Flipped Very Bearish On The Stock Market

Joe Weisenthal (0:01)

Hello, Odd Lots listeners, it's Joe Weisenthal, and I just wanted to make a special programming note before you listen to today's episode. We recorded this episode on Wednesday, June 26th, so several weeks ago. And because this discussion is related to specific events coming up, specific forecasts of the world economy, the world markets, we wanted you to be aware of when it was recorded, so that anything that's happened subsequently, you can put in context in case things have changed a little bit. It's still an interesting, timely and relevant discussion in the grand scheme of things, but we just wanted you to be aware of exactly when we had this chat.

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:59)

And I'm Tracy Alloway.

Joe Weisenthal (1:01)

Tracy, something I've been thinking about lately is that we're in a pretty interesting time for financial markets. And I should start by noting that today we're actually gonna have a conversation about markets themselves, rather than some esoteric topic tangentially related to markets. But it feels like we're, I don't know if crossroads is the right word, but lots of interesting things are just happening right now.

Tracy Alloway (1:29)

Well, I'll take the bait. I can think of a few interesting things that have happened recently. For a start, as we're recording this, we're coming up to the G20 meeting. There's a bunch of expectations around Xi Jinping meeting Donald Trump, whether or not they'll agree some sort of trade deal or a trade truce.

And we also have the 10-year US Treasury back below 2%. That was after another dovish pivot from Jerome Powell at the Fed. And we have a whole lot of negative yielding debt.

We also have earnings season coming up. So yeah, there's a lot going on.

Joe Weisenthal (2:09)

But the one thing you didn't say and what makes it really weird is that with all this tension out there, whether it's trade, the Fed feeling that it needs to pivot to more dovish stands to signal possible rate cuts, all this debt falling deeper into negative territory in many instances, the stock market is more or less right now at an all time high. So despite all these concerns out there and interesting stresses showing up in the market, the one market that's sort of the purest proxy for risk sentiment is basically as good as it's ever been.

Tracy Alloway (2:44)

Yeah, so we have this big divergence between bonds and stocks, but if I could just say one thing, it's interesting because we talk a lot about the bond market pricing in a potential recession, but it of course depends on what bond market you're talking about. Government bonds, sure, but if you look at corporate bonds, other types of credit risk, those are also doing amazingly well. So again, the riskier parts of the market, equities, credit, all doing really well, while other parts are sort of screaming that a slowdown is about to hit.

Joe Weisenthal (3:17)

Exactly right. And then the one thing that I think also sort of makes even the stock market interesting is if you look at various survey measures, there's not a ton of bullishness out there.

Various surveys of say, fund managers, lots of anxiety, lots of evidence that people are engaging in a high level of hedging, defensive stocks leading the rally higher. So even within the internals, not many signs of euphoria. It's just kind of a weird time.

Tracy Alloway (3:47)

Yeah, it feels like a lot of people are in wait and see mode, but I'm not sure what we're waiting for at this point.

Joe Weisenthal (3:55)

I don't know what we're waiting for either. Anyway, so I mentioned at the top, we're gonna be talking about actual markets today. And I'm very excited about our current guest.

He flew all the way from Singapore for this podcast. No, that's not totally true, but.

Tracy Alloway (4:09)

Of course.

Joe Weisenthal (4:10)

He's one of our colleagues here at Bloomberg.

And I always love talking to him because he's based in Singapore and every once in a while he comes to New York.

And he's our macro strategist, or he's one of our macro strategists here at Bloomberg. He puts out views, he's a former trader. He has very strong opinions about the market. And what I think makes him really notable right now, among other things, is that he's been a longtime bull who suddenly flipped bearish. And that's not very common, but someone, there are a lot of people out there who are bearish, but they're always bearish.

It's refreshing and different to hear from someone who may have flipped or who has flipped.