00:00 Speaker A
Um, the other thing that has been has been causing a little bit of volatility in the market. Certainly, we saw this play out yesterday is this sort of back and forth around the future of the Fed. And whatever happens at the top of the Fed, the sort of continuing independence of the Fed, what felt like sort of a trial balloon on the part of the administration yesterday, did see a reaction in the markets that may be sent a message to the president.
00:42 Speaker B
Yeah, it absolutely did. And and I think what's been interesting, like part of the reason I think you're getting, you know, you can call it complacency or just maybe sanguiness in the market, is essentially the fact that the Trump administration is willing to send out these trial balloons, but at the same time, when you start to see panic uh in the pond market perhaps, or in VIXs, that's quickly withdrawn. You know, I still remember back to this interview with Scott, uh post liberation day where he actually said, look, I think the VIXs spikked. You know, I can't remember another time where you've had the Treasury secretary commenting on the level of VIX, but the fact that he said that it just tells me they're very aware of the market. Perhaps that means there's some guard rails. You know, we can guess what strike those guard rails are at. Uh but but you are there sort of to some degree negotiating against those reactions too, and that is important to keep in mind.
02:14 Speaker A
Do you think in some ways that the tactics of this administration has been to I mean, we sort of saw this play out with tariffs, right? The the big reaction, the negative reaction, and then the pull back on the part of the administration. But then since then, the sort of like steady chicking away at that wall, perhaps chipping away, right? Trying to get through. Do you see that applied in other ways like what's going on with the Fed, for example?
03:16 Speaker B
Yeah, you know, when you when you think about the strategy of it, the the kind of like the initial headline poster board we got with all those high tariff numbers, there there's some human psychology involved in the sense that anything we walked down from then uh obviously seems better even if if that was the outset of what we had started out with, the reaction, you know, certainly would have been worse. So it's like that play on human overreaction and under reaction. You know, we can really see that quantified, Julie, because we see it in the factor rotations that have occurred since liberation day. So the best performing factor has been momentum, and you've seen this big trade-off, you know, multi standard deviation trade-offs and momentum factor against something like value. To me, again, that goes back to this big overreaction you got from tariffs, and then anything we get that was lower than that initial poster board number, the market is actually tending to underprice that.
05:12 Speaker A
Um and so now, of course, we're going to earning season. That's the next big catalyst. It feels like given the discussions we've been having that investors are feeling pretty good going into this period. Um so does that imply that at least for now, barring another volatility pot hole or shock, that the the path of least resistance is higher?
06:02 Speaker B
I think for the short term, yes. And and that is how you're seeing it priced in the options meaning, you know, you don't see VIXs spiking in the near term. You don't see this uh heightened demand for skew, so that demand for downside protection. What I will tell you is because the bulk of my day is spent talking to institutional investors, you know, they still remain pretty angsty. It's just a function of they also know they can't miss out any rallies because that's hurt them a lot post liberation day. But I wouldn't tell you that the sentiment is actually necessarily all that positive. They're just very hesitant to hedge when they know there's this possibility that a lot of things get can kicked. I think that's why you continue to see the options market tell you there is worry, it's just further down the line.
07:19 Speaker A
Really interesting perspective and helpful. Amy, thank you so much.
07:28 Amy
Thank you.
