00:00 Speaker A
Well stocks are closing lower to finish the trading day, retreating from those records. For more on the moves in today's market, the overall setup, let's bring in Michael Green.
00:09 Speaker A
He is the chief strategist at Simplify Asset Management. Michael, thanks so much for stopping by.
00:15 Speaker A
So let's just start with um kind of your take on what role the Fed has played over the last month. You know, we've it's I think it's exactly a month today from when Powell spoke at Jackson Hole.
00:27 Speaker A
We knew the rate cut was coming. We got the guidance last week. Um we've seen markets levitating, you know, pretty orderly up to those record levels.
00:34 Speaker A
Um what you've made of that action and how you're thinking about the Fed's role at this point in in today's action. Well in the cycle I would say.
00:41 Michael Green
Yeah, I mean, ultimately, I think what has transpired is with the introduction of and confirmation of the rate cuts, we saw the bond market rally slightly.
00:48 Michael Green
They've come off of the best levels, but that ultimately creates collateral, right? And so what is actually happening is is if your bond portfolio is performing, you're running a systematically rebalanced portfolio like a target date fund, which most most Americans are invested in and their work and their work uh retirement funds.
01:04 Michael Green
That will actually ultimately an increase in the bond market will create additional ammunition for buying stocks that helps stocks rise. It has nothing to do with economic outlook or anything else.
01:14 Michael Green
It's really just a mechanical property of the system. What we've really seen over the last month has been rising retail participation, particularly in meme stocks, unprofitable tech stocks, etc.
01:23 Michael Green
There's very much the same energy that we saw emerge in the coast Covid post-COVID environment in which people are simply saying, hey, I want to get in, right? I want to be part of this.
01:32 Speaker A
So when you when you see that, like what does it say to you about um maybe those names but also just like does it make you nervous or is it just something like, oh, I guess I guess we're doing this again?
01:42 Michael Green
Well, there's an element of I guess we're doing this again, but I think the much bigger component that it's ultimately highlighting is how what I use the term inelastic, how inelastic the market has become for relatively small sums of capital.
01:53 Michael Green
We're seeing extraordinary price moves. Oracle, of course, is one that's caught many people's attention. We've seen this across many other market capitalization names,
02:00 Michael Green
the circular phenomenon that we're now seeing with Nvidia and Oracle and AI and the related names.
02:06 Michael Green
This is simply powering a market to move on very, very low volumes. At the core of it sits the underlying dynamic that over 50% of the market capitalization is now effectively hoddled inside passive vehicles.
02:18 Michael Green
So when those flows come in, it's the equivalent of trying to buy a low float stock and it causes prices to rise anomalously in a way that you wouldn't expect a mega cap to respond to.
