Interactive Brokers Chief Strategist Steve Sosnick joins the On the Move panel to discuss the latest market action ahead of the election.
JULIE HYMAN: Let's put it into perspective, as well, in terms of what all of this means for the markets. And for that, we bring in Steve Sosnick. He is Interactive Brokers' chief strategist. He's joining us from Connecticut.
It's interesting that Brian just mentioned housing because we got the GDP news this morning. We also got the interesting, and perhaps surprising, news that pending home sales fell in September by 2.2%. The estimate was for an increase of 2.9%. So I'm curious, Steve as you're looking at the third-quarter GDP-- which of course, is in the rearview mirror now-- and then some of the other economic data, how are you weighing all of this and how are clients weighing all of this, as they look to the market right now?
STEVE SOSNICK: I think it's really the push and pull between the high-frequency data-- something like the housing, which is monthly, or the employment numbers, which are weekly-- versus the longer-term running data-- which is the GDP-- which looks backwards. Housing is, historically, very volatile. And we've been on this great housing run, as we've had, sort of, what I'm going to call dislocation-- people moving from cities to suburbs, or changing their living situation. And it's also been punctuated by these very low mortgage rates.
All that brings you a good housing market, but those numbers can be fluctuating more or less-- they don't move as quickly as the stock market but they can be almost as volatile, just because there's so many weird factors that can go into play into where they're coming from.
ADAM SHAPIRO: Steve, I'm curious. As I'm looking at markets-- right now positive-- is this a reflection of the economy is going to recover from the pandemic? Or-- we're going to talk more in-depth with our next guest about the FANG stocks that are reporting today-- but they have such an oversized evaluation, within the different indexes. Is tech driving what we're witnessing right now?
STEVE SOSNICK: Yes, although I'm not going to read too much into it. The move that we're seeing this morning, especially because it didn't get off to such a great start, you know, we've been back and forth. I think what we're seeing is a bit more of the buy the dip mentality today, more than, sort of, a sustained move. I mean, we've only gotten back a fraction of what we lost yesterday. And the fact that it's centered in the names that have been relatively foolproof buy the dip type of names, which, coincidentally are among the ones reporting this evening.
I'm not going to read too much into that market action. I think it's healthy. It's saying that whatever panic we saw yesterday seems to be abating, at least as of now. But obviously, there'll be another shoe to drop after the close today.
JULIA LA ROCHE: Steve, it's Julia La Roche, always great to be with you. I want to bring up the VIX. A lot of folks have been talking about that. What's going on there?
STEVE SOSNICK: Oh, VIX. Well, VIX went from nervous to really nervous over the past few days, to put it in perspective. I mean, what we had been seeing all along was that-- and I'm going to speak in terms of the futures versus the spot. So this is where it gets a little confusing because spot VIX, which is that VIX number that you see, is actually a 30-day look ahead. It's the market's best guess of what volatility is going to be over the next 30 days. And then you get into VIX futures, which are 30-day look aheads from whatever point in the future.
All that being said, we saw VIX spike dramatically-- the spot VIX. What we had seen was the peak for volatility was actually in November and December. And so what that's telling you is there was a 30-day look ahead from mid-November on out as the peak volatility. I think that's more related to tax fears that could surround a blue wave than anything else. But now you bring in just some outright market dislocation, that we saw Monday and yesterday, and you've got VIX spiking.
What that tells you-- when you see this, where we have what we call a back inverted or a backwards curve, where spot is higher than the futures-- that's telling you there's a lack of available volatility protection because people were really clamoring for it. You know, sometimes it's locking the barn door after the horses run away. But that is, I think, to a certain extent, what the VIX has been telling us now is people are nervous. And between earnings and the election, they have every right to be.
JULIE HYMAN: Yeah, and the election, obviously, is that an event that is coming up soon, and then maybe people are looking for more calm further out. We shall see. But I do want to ask you about the election. Not necessarily how to trade around it, but what predictive power the markets might have for the election. Saw an interesting stat this morning from Strategis, that the S&P 500's performance in the three months leading up to the presidential election has correctly signaled who will win 20 out of 23 times. When stocks gain during that period of time, the sitting party has won 86% of the time.
You know, there are a million things like this, Steve. But how seriously do you take something like that, and should investors be using those kinds of predictors?
STEVE SOSNICK: Um, I think with any of these predictors they work until they don't, you know? Even with an 86% track record, it was 14% wrong. So I think, unfortunately, there's nothing that's foolproof. If there was, I would be waving it on a big flag and telling everybody about it. But there is no such thing.
What I really think, right now-- the markets don't know what to expect. I spoke to a portfolio manager last week-- a very experienced long-term friend of mine. And he said, what happens if Trump wins? Nobody's even thinking about that one. Which, right now, is a low probability event, but the markets haven't even processed that one.
And I think markets, got, I'm going to say, a little too comfortable with the idea of a blue wave because they were focused on the potential for stimulus. But that's not, right now, looking until late January, early February at the earliest, if there's a blue wave. And if not, who knows what we get. And even then, that stimulus is going to be paid for, most likely, by higher taxes. I don't know exactly when, but people might be fearing that their capital gains taxes are going to go up. So they sell in advance of this.
What it means to say, Julie, is it just-- you know, you throw it all in the air and hope for the best. And you know this is the problem with elec-- I mean, last time the elections, you know, flummoxed everybody. And we had more or less a complete changeover. So who knows?
ADAM SHAPIRO: Steve Sosnick, Interactive Brokers' chief strategist. Always good to see you, and we appreciate your being here. I think someone's got to answer that phone.
STEVE SOSNICK: Sorry.
ADAM SHAPIRO: All the best to you, Steve.
STEVE SOSNICK: Take care, thank you.