Markets Ahead of the Midterms

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1:34This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Speaking of big tickets, Jordan Jackson joins us here. Global market strategist for J.P. Morgan Asset Management joins us here in studio. Jordan, welcome. Let's go with your lead here. The AI sell-off is overblown, and it's a buying opportunity. Talk to us about that call from J.P. Morgan. Well, if you just think about where valuations and how they've evolved over the year, you're getting these stocks at, let's say, a 25 % discount relative to where we were at the start of the year.

2:15So I think a lot of the risks are largely being priced in. You're seeing this in some of the corporate credit spreads and some of the CDS markets as well. So, look, the markets are pricing in some of the sweetness, but they're punishing free cash flow, not demand. When we look at customer orders, when we look at backlogs, we've got demand visibility, I would say, out to 2028. Cloud revenues up over 50 % across the hyperscale of search. Yes, a lot of worries around search for sure. I think there's been worries around search. You know, the big players have already highlighted this when AI first hit the scene.

2:49So there's nothing new here. And the fundamentals continue to look pretty robust. We're just getting a better price right now. So is it just contagion? People, the fear sort of just, you know, starts to escalate. You see your buddies sell and you decide to sell too. Well, it's a crisis of confidence is the way I would put it. And I think there's a growing kind of lack of confidence or at least euphoria around a trade that has done very well for investors over the last three and a half to four years. And so I think a little bit of this consolidation is healthy. I think, again, you're now getting a better entry point on a lot of these names.

3:24And, you know, I think they're positioning themselves to continue to be leaders within the AI race. There's certainly competition amongst the hyperscalers themselves. But I think this is a constructive backdrop. Once we get past the midterms, you've got another cloud of uncertainty that's behind the market. And so we'll get a sense of what policies could look like on a go-forward basis. But I think all things point to a market that this is a buying opportunity. So as it relates to the AI trade and the AI angst, maybe, in the marketplace, A, it's just the total dollars being invested and will I get a return on those dollars?

4:00And then two, probably your 1A is a concern about just how that's all being financed in the marketplace. A lot of debt being issued by companies that typically don't issue debt, number one. And a lot of that circular financing deals that have people are a little bit nervous, I guess. How do you guys think about that? No, it's certainly a risk. You know, I would say that the circularity of the deals, you know, you do get a little bit concerned when the company that's selling the shovels is financing the buyers of the shovels, right? So that is a somewhat circular concern. But there are other areas of demand.

4:35It's not just these companies. There are big customers of each other, but they're finding other avenues in terms of customer and demand base as well, whether that be neoclouds, whether that be, again, other sources of demand from new players coming into the market. So it's not all just a circular story or a circular demand. I think it's much, much broader than that. And some of that's a little bit overblown. I do think, though, the financing aspect does become more interesting, and particularly in a sense that if we see this IPO come to market, this new player come to market, and they've got a junk rating, now they've got to borrow at 300 to 400 basis points more than what they would have if they would have come to market as an investment-grade company.

5:19And that's certainly going to put some stress. But we're going to get October annualized revenue numbers. We'll see what that comes in. And I think that's going to be pretty important for the markets to try to size up just how quickly this monetization story is actually happening. When it comes to the Fed, are you in the are you in the camp that we're going to get a December rate hike? Because it looks like the Treasury market's doing a lot of the heavy lifting for the Fed all on its own. Yeah. I mean, yields have come back off a little bit. I recognize that the market's been roughly flat, you know, for for for a little bit here and choppy.

5:54So I think the markets are doing some of the Fed's work for it, but I don't think it's enough to quantify another rate hike or another two rate hikes, which, you know, markets are still pricing in over 50 percent probability that the Fed's going to hike also in March. And so I'm broadly kind of in agreement with the market here. I think we're probably looking at one or two more rate hikes coming from the Fed. It'll ultimately depend on what happens with inflation. right now. Now, the big spike in oil happened in April and May of this year. And so just the base effects are going to start to work in the Fed's favor around the second quarter of this year in terms of that year over year run rate on inflation.

6:33It's just going to be a question of how patient the Fed is willing to be. So outside of the AI trade, which seems to take up most of the bandwidth from the marketplace, where else do you guys see opportunity in the equity, U.S. equity markets? Well, first, you know, you think about the fact that healthcare has been able to play a lot of defense relative to the Czech trade. So if you're looking for kind of that little bit of equity sector diversifier to the AI trade, you know, healthcare has kind of been, we acknowledge that the sector itself is expensive, but it does, has proven to be that zig on the AI zag.

7:08I think it's also important for us to think about what's happening with earnings. And you're still looking at materials, industrials, financials, ex-Berkshire, coming in very, very strong. And so I think that is a supporter for more cyclical parts of the economy. Nobody, including ourselves, are calling for a recession next year. And so that provides a good backdrop for the market and corporate earnings. I think one area where we're a little bit sort of have a bit of angst around is kind of the consumer parts of the market, particularly, you know, staples, some parts of discretionary particularly cater to lower income consumers because we know that they're certainly feeling the pinch.

7:49Yeah. And to that point, inflation is now top of mind for corporate America. Some Bloomberg analysis shows that this earnings season, the mention of inflation is the highest it's been since 2022, when, of course, we know that inflation hit 9%. So is this market maybe not paying enough attention to the possibility of the destruction that higher inflation can cause on the consumer who has been the pillar of this economy? Yeah, well, look, it's it's. We now have seven consecutive months, likely when we get this this week's report in which wage growth is below that of inflation. And so real wage growth has been negative.

8:26So that's obviously weighing on on on on on a lot of consumers. But it's been the case over the last few quarters that it has not been the everyday consumer that is driving consumption growth. It has been the upper income consumer. And the fact that you've got now potentially four consecutive years of double digit returns in the market doesn't appear that that wealth effect isn't going to go away anytime soon supporting upper income households. Not only that, those who are maybe older and in retirement and have bonds, they're actually getting income out of the bond. So you've got both sides, both ledger of the balance sheet that's working kind of in their favor.

9:01So I think they'll continue to be in the driver's seat from a growth standpoint. And we've been seeing companies, even whether it be survey-based data in some of the PMIs, as well as in producer prices, that inflation has been a problem for corporate America. It may continue to be a problem. The question is going to be, how much does that get passed on to the end consumer versus how much gets absorbed into corporate margins? Jordan, thanks so much for joining us. Really appreciate it. Jordan Jackson, Global Market Strategist at J.P. Morgan Asset Management. Stay with us. More from Bloomberg Surveillance coming up after this.

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11:56local polls really aren't that accurate. You don't you want to bet on them, although poly market and Calci apparently does. But I don't know. But it just seems like we're not always accurate. Some big misses from time to time. But again, maybe we're going to wake up Wednesday and there will be some shift in Congress and power and maybe there'll be some increased Democratic power within Congress. What does that mean for policy and for markets and all that kind of stuff? Our next guest helps us out here. Steve Englander, global head of G10 FX research and of North America strategy for standard chartered bank.

12:27Steve, if we do wake up Wednesday morning and there is some increased control maybe in the House, maybe the House and Senate by the Democrats, and we've still got a Republican administration, does that mean gridlock? And what does gridlock mean for markets? Well, the president has already said he's going to veto everything that the and can't send his way unless he likes it. You know, I think the markets actually prefer gridlock to any of the partisan alternatives. The Republicans had two reconciliation bills. Everyone's dissatisfied with where the deficit is and where U.S. debt is. And, you know, you don't know which segment of the...

13:09If the Democrats have a really big blue wave, you don't know which segment of the Democratic Party is going to be the winners at the center, which the market would be fine with, would it be the very progressive wing, which might mean less AI development and slower growth? And I think that that's the question. But overall, what the market expects is gridlock, and I think they're happy with gridlock. Steve, there was some Bloomberg analysis that showed there will be more than 40 data center-related measures to vote on in the midterm elections. We know this has been a hot button topic throughout these midterms.

13:47How might that impact how investors look at the AI trade? Well, you know, when you look at the midterms, the real question is what happens immediately? So, you know, Democrats winning might matter for 2028. It doesn't matter for 2026. But if those proposals, say, get passed en masse, I think it does begin to raise issues about the speed of the build out and how fast we'll be able to exploit this technology and you know and sort of what the potential is it i mean it could lower bond yields um on slower growth and slower investment it probably would you know could do some damage to the equity market because of all that's priced in there uh and it'll probably hurt the dollar because that's one of been one of the sources of dollar strengths that's assuming that it's a wave all in one direction right that's kind of where i wanted to go on the currency side again gridlock ish type next two years what does that mean for the dollar how do we want to play it in the currency markets um for the next you know a couple years type of thing you know we've been running with the theme over the last year um you know the ai theme or or broad more broadly the technology thing but that's dollar positive that it induces direct investment in the u.s and induces portfolio investment and ultimately that's what matters for where the dollar goes.

15:13We're not ready to back off from that theme, but obviously the way, two things have happened. One is that a year ago, we were kind of isolated and arguing that that was going to be the dollar theme. And now much of the market recognizes that. And the second part is that there's more risk to it right now, given all the issues that have emerged. So we're still dollar positive, but cognizant that, you know, the politics and, you know, may sort of put some headwinds in the dollar's way going forward. Steve, what do you think is the biggest market risk in these midterm elections? I mean, we just spoke about a possible risk with these if the votes go one way regarding these data centers and cities across the country.

15:59But what do you think is the greatest risk? I'm a strategist. I'll give you two. Look, I think the market really, you know, there's like in the betting markets, there's roughly 5 % chance that the Republicans pulled it off. I think that that's kind of, you know. That would be an upset. Yeah, but it would be negative for markets because I don't think that they're, you know, they're not your fathers or grandfathers Republicans anymore. The other side would be if it looks like, you know, progressives really are catching a wave and that the, you know, what it signals is that come 2028, there could be a big shift to the left.

16:36I think that that would scare markets as well. You know, I'll just say this for free. The best outcome for markets, I think, would be if the Republicans sort of kept the Senate narrowly, you know, 50 or 51 seats, and if the Democrats ran the House or won the House narrowly. And that would tell you that nobody's really satisfied with the set of candidates. And would create that gridlock that we were talking about. It would create the gridlock, but it also might say, look, you know, we better have better candidates running in 2028. Great. You know, we've all seen over the last several weeks and maybe close to a month now, the events in France.

17:17And, you know, and we spoke to a guest today, say it's not really just France. It's across many parts of Europe here in terms of economic unrest with, you know, government balance sheets, spending, affordability, all those issues. What does that mean for the euro here? Is there a trade here for the euro? You just want to stay away from it? Well, I think that that is the case. And obviously we have presidential elections in France coming up in April and May. Italy has elections later in the year. UK has elections down the road, Germany eventually. And this unrest seems to be Europe-wide, not just in one or two countries.

18:04You know, the difference is that two months ago, nobody was talking about it the reason the euro is 112 rather than say 114 or 115 is yeah is because of this so it's partially priced in but we also know that you know i don't think it's fully priced in and i don't think the unrest is going away and um you know technical economics term i may have used it before chickens coming home to roost on fiscal policy it's not as if they they can say okay we'll spend some money and calm everything down they don't have the money that's right and the markets will punish them if they try and spend the money. They can't say, we're just going to work harder and be more productive and grow out of this thing.

18:43That's not what they do over there, by and large. They have a very ambiguous relationship with productivity growth. That's an interesting way of putting it, Steve. In principle, they like it, but when they come face to face with it, they say, oh my God, we're going to lose jobs. And pensions. And they don't like it. I noticed that just when I was back in France a few weeks ago, the 35-hour work week they love that and even that's a push we don't know what that's about here but just the whole sense of what's the state gonna do for me and my response was like can't you grow yourself out of this thing yeah it's a cultural mindset though you can't change it overnight can i just say that the you know the numbers you don't have to be a math whiz you can't start working at 25 retire at 60 and live at 85 unless you can't steve unless you have a savings rate that's out of this world.

19:33Exactly. Steve, thanks so much for joining us. Always appreciate it. Steve Englund, Global Head of G10 FX Research and of North America Strategy for Standard Chartered Bank. Stay with us. More from Bloomberg Surveillance coming up after this.

19:56you're listening to the bloomberg surveillance podcast catch us live weekday afternoons from 7 to 10 a.m eastern listen on apple carplay and android auto with the bloomberg business app or watch us live on youtube joining us here in studio paisley nardini head of investment strategy at TEMA ETFs. Pacey, thanks so much for joining us here. Where are the funds going on your platform, on your ETF platform? Because we hear the dollars are just unbelievable that are coming into the ETF space, continue to do so. Where are you seeing the fund flows? Yeah, thanks for having me, you guys. Lots going on this week.

20:31We've seen, I would say, historical amount of inflows into thematic ETFs this year in general. A lot of that, of course, has been driven by the AI trade at large and really all the bottlenecks beyond that as well. So even though AI broadly has gotten beaten up in the last couple of weeks, we're still bullish on the sector long-term. We actually see this as a potential buying opportunity, just given some of the attractive valuation. So a lot of our clients are really kind of taking a step back with some of the recent sell-off. We got the midterms this week, of course, and like heading into year end, we're actually pretty bullish on the rest of this quarter and into early 2027.

21:06So where's the most money flowing into what themed ETFs? Because, I mean, is it still those AI ETFs or are you seeing that rotation out of AI even in the ETF world? Yeah, so I do think that a lot of the flows are leaving some of the hyperscalers, some of the mega cap companies into more of those bottlenecks. Some specific examples of that would be in photonics, optical. We saw the breaking news this morning on Lumentum being acquired by Marvell. Obviously, Anthropik is front and center as well as it relates to the broader trade. So whether it be some of the infrastructure itself, that's something that I think has been really top of mind.

21:42In order for all of this to come to fruition, we need the data centers to support this. So those are some of the high-level themes that we're seeing and some of the flows that are accompanying them. We're going to get just another mega IPO with Anthropic here. How are you seeing that play out in the AI space? So it's really interesting. Anthropic, of course, had some of their financials leak earlier this quarter. And so a lot of focus was on the S1 that came out a week ago today. And we were actually pretty constructive on some of the information that came out of that. I think a stronger balance sheet from a cash perspective was number one.

22:19We've, of course, seen a lot of the hyperscalers and the spenders being penalized for spending cash. And so the fact that Anthropic is still showing about$130 billion in cash and only about a$9 billion net cash burn to get to this profitability level is impressive. And I would also say the diversity in customer base. A year ago, Anthropic was looking at the top two of their customers being about 20 to 25 percent of their total revenue. And today, the top five customers are about 20 percent, meaning 80 percent of their customers are beyond that concentrated top five. So that's encouraging. It is encouraging.

22:54I think in order for any business to be profitable, you can't be overly dependent on one or two customers. So that breadth of customer base, the cash balance that we're seeing from Anthropic. And then I would also just say, too, the opportunity outside of just the direct AI play. In some of the S-1 filing, we saw information on health care, pharmaceuticals, and what that could mean from just a diversity of business line as well. So is that sort of the, are those the verticals that will sort of be accompanying like a company like Anthropic going public? I think something that's been interesting to me is we take a step back and just looking at some of these large companies.

23:30I mean, Anthropic would be the largest IPO that would come to market ever. And in order for these companies to be resilient and have sustainability, they do need to have multiple profitable business lines. And that, I mean, just turning the table as we think about some of the market penalizing Alphabet last week, is even though their cloud computing, which broadly across the AI space has been a huge tailwind for a lot of these companies, some of their core business lines like search ad revenue have been declining. And so the market is starting to be a little bit more discerning. But again, going back to Anthropic, I think there was a lot of optimism with last week's S1 filing.

24:07We have midterms tomorrow, big change or big elections coming up for lots of parts of the country. A lot of people say that's that introduces uncertainty into the marketplace. I mean, how do you guys think about that? So I think the uncertainty is what's happening now up until tomorrow. So I think we are at the cliff of uncertainty. And of course, the market just likes information, whether it's good information or bad information. The market likes to have certainty. And so hopefully by the end of day tomorrow, early in to Wednesday, we will have that certainty and the market can start to look forward.

24:39What the market is anticipating currently is, of course, gridlock. And I think a lot of people might be surprised why that would be bullish for markets. It essentially just means that we're probably not going to have any massive regulation or policy shifts in the next two years. So the market can really then start to look at the information it has today and move forward. And then to post midterms, we typically tend to see the stock market move higher. going back to kind of the post-war, about mid-century, that the average return of the stock market was up around 14 % in the six to 12 months after a midterm.

25:14Yeah, that is the historical average. There's some nice tailwinds there. Yeah. We're still in it to win it when it comes to earnings season. This week, we're going to hear from Apple today after the bell, also AMD, Qualcomm. But you say, and we see this time and time again, beating is just no longer enough, right, for Wall Street to want to applaud some companies' earnings results. So what is enough? Exactly. So we have about 20%, I think, of the S &P 500 reporting this week. Last week, we had a lot of information as well. And you're exactly right. Meeting and even beating expectations, stocks are still getting penalized because the market actually cares about what's going on under, I would say, under the hood.

25:50And that's been a huge, I would say, a huge shift in direction from the last three years where it was a rising tide lifts all boats. And so when we look at the opportunity set today, I think especially as it relates to some of the hyperscalers, making sure that that spend is actually going to have a return on investment. I think the other thing that's super interesting is that Faxet released some of their kind of intra-quarter reports last week. And we saw that there's this shift happening right now where the MAG7 earnings growth is starting to decelerate expectations for fourth quarter of this year.

26:21And the baton is being handed over to the other 493 companies. And so this broadening trade that we've seen play out in the markets from a technical perspective in the last couple of weeks might actually be supported from a fundamental perspective. And so that's something I think is very encouraging because, of course, we talked a lot about breadth in August and into September. Market got that rotation. And so now that we're seeing more of the defense of the health care play out relative to technology or discretionary, markets are maybe saying maybe breadth isn't what we wanted. And so if we can see fundamentally supported companies outside of the tech trade, I think that's really bullish for markets heading into 2027.

26:57Paisley, thank you so much for joining us. We really appreciate it. Paisley Nardini, Head of Investment Strategy at Tema ETFs, 3.9 billion assets under management, 15 ETF strategies. Stay with us. More from Bloomberg Surveillance coming up after this.

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28:50You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. You know, we have hyperscalers all report their earnings. And then they're just like the banks. Once they report their earnings, then they come out right after and start hitting the bond market. in the case of Oracle, the equity markets. Right. Why? Because they've got to fund all this AI spending. And I think the world's, the markets changed how they're viewing it. In the early days, it was just, you know, build, build, build, and they'll come.

29:22Now it's like, you've got to show me return on investment. Right. You've got to show me how you're capitalizing all this stuff. So I think the risk profile of this AI story's changed. I wonder if we're seeing it in the futures and options market. For that, we go to the pro, Amy Wu Silverman, Managing Director and Head of Derivative Strategy for RBC Capital Markets. So again, Amy, it seems like the investor sentiment's been changing over the last several quarters as it relates to AI. And maybe people are starting to ask more questions about how it's being financed and what the returns are. Do you see that in your market in the futures and options and derivatives market where maybe they're going to be buying some protection here?

29:56We 100 % see it. And if you go back not to this earnings, but past earnings, I think it was the single largest realized earnings day move for both Amazon as well as Microsoft. And then now this time around, same thing for Google, single largest move on record. And so when stuff like that happens, obviously that shifts your one day realized move on earnings. But what it also does is it shifts your forward moves for what is expected after. And I'll tell you, I think when we talk to investors and we think about their sentiment, they're just like, look, these aren't the hyperscalers we married. You know, they've got free cash flow inflection.

30:31They're going to the bond market. They're hitting it up pretty hard. And so at the top of the house, you know, these are just really different beasts and they should be reflected in different volatility profiles. Volatility had had been a bit of a sleeper. The VIX wasn't doing really much of anything. It's sort of hanging out now at around 19. How do you view the VIX at the moment? And are we going to be in for a much more volatile end of the fourth quarter? Yeah, I would say, you know, I think when when we were speaking maybe a month ago, you were looking at the ratios of move versus VIX. So just treasury or rate volatility compared to equities.

31:10And it was definitely like VIX was very sanguine, but everyone else was nervous. And as a derivatives person, that that doesn't make me happy. That makes me nervous because, you know, you can continue to go back to history and it tells you that volatility in different asset classes does not stay contained. You know, it doesn't just live here and not come here. And that's kind of what we saw last week. And to some degree, I would say that was a good thing. We really needed that shakeout and it finally occurred and we've normalized a little, but there's definitely more of the ride, I'd say, in the months ahead.

31:41So these AI stories, the tech story has resulted in a level of concentration like we haven't seen before in the indexes. Does that make your job harder to come up with hedging solutions for people who may want to hedge out some of this AI risk? Because it's almost like it's really tough to hedge against AI. I don't know what to buy gold. Who knows? What do you do? How do you guys think about that? It's interesting. This was something I actually heard on a podcast this weekend. But someone was saying, look, if you think about different factors, like momentum factor, value factor, quality factor, it's really hard to say, well, what is AI factor?

32:18ai is literally in everything the circularity is there so how do you isolate that so to answer your question yeah it is challenging and you kind of have to go to these subsector levels well look at this just another piece of news coming out alexis reporting here anthropic 3q net loss 23.3 billion dollars which was that's about double nearly double what they were expecting and that's a year over year number so we're starting i mean i guess when you see a number like that from Anthropic, they're still spending. I mean, these companies, it seems like. Yeah. Unfortunately, I can't make any commentary right now.

32:54Every investment bank on Wall Street's on this deal. I think most of your guests will have that issue. So what do you think about just, again, going back to, is it worth hedging my AI concentration or do I just throw my hands up and say, you really can't, you know? So I'll say two things. The first is the way the market has been thinking of this hedging is just to violently rotate. Yeah. So essentially they're like, OK, well, now I'm going to go camp out in health care and I'm going to maybe move into small caps. But the second part of your question is, should you use optionality? I think the answer is yes, because as we have seen, if you had taken that initial signal of, hey, rates volatility is telling me something, is that going to bleed into index volatility?

33:35It does eventually happen. And we did see that this past week. And I think we'll see that tumultuousness going forward, because the main thing we have to remember is that investors are asking a few more questions and it's not just carte blanche capital everywhere. We're getting some more anthropic headlines right now. I just want to jump in and let folks know that third quarter revenue, nearly 17 billion versus 1.3 billion year over year. So they are growing revenue streams by gangbusters. Third quarter total operating expenses, 17 and a half billion versus 4.4 billion. But again, that net loss, 23.3 billion, Paul, versus 12 billion year over year.

34:11Yep. And so I think we're going to get any day now, them starting their roadshow, because I wanted to, I believe, initially price sometime next week. So get it done. So we'll go for that. The roadshow is going to start, I guess. What were we saying? And next this week, possibly? I think this week probably is kind of what they were initially thinking, because I'd love to get this thing trading before Thanksgiving. We're speaking with Amy Will Silverman, Managing Director and Head of Derivative Strategies for RBC Capital Markets. She's in our studio here today. Amy, we got the elections tomorrow.

34:40typically that leads to volatility in the marketplace. Are you seeing that in the derivatives market? Are your clients asking for, you know, different types of solutions there for maybe some risk? I think what we've sort of seen in the derivatives market, it's been pre-traded a little. And so it wouldn't surprise me to some degree. And I think that other investors have kind of highlighted this too, that we're just going to get a clearing event because it's finally over. Now I'll put one pin in that, which is that assumes that it is over. And certainly, you know, as we have seen in kind of previous elections now, when there's some sort of the election being contested or some issue, you know, just like point to Alaska, for example, what's going on with the two Dan Sullivans, that certainly can create kind of interim volatility, especially short term.

35:24We saw that reflation happen last week. Maybe that remains sticky if we don't actually get some conclusive answer in some races. So what do you see as the biggest, I guess, hurdle challenge for this market this quarter? I mean, it's interesting because I think it's still just earnings. You know, we still have to get through it. Certainly, you know, if something occurs with midterms or Iran, that could be a challenge. But what we have seen is the market's been pretty good at digesting anything geopolitically. It just comes down to what these companies are saying and if the investors are dissatisfied with what they're saying or what they're spending.

35:57You know, you think about some of these crosswinds, headwinds in the marketplace, whether it's the war in Ukraine or what's happening in Iran and how the impact is on global energy. The markets kind of just power through it. I mean, does that surprise you? Are clients saying they're trying to look to the other side? What are you hearing? You know, I'll point to one structural thing, which you actually brought up in the last segment. But it's the sort of backstop we've had that's been really interesting in the options market with retail. So, you know, you've looked to all these past dips that could be Liberation Day that could go back to the COVID sell-off.

36:32And you have had this backstop of retail saying, hey, I think I've learned my lesson of the last 20 years, which is typically you step it in by the dip. Now, to be clear, we're not actually seeing that priced yet in call options. But we're watching that very carefully because that's something that has occurred every time we've gotten some sort of substantial drawdown. We do see that call buying step in. And are you also seeing this rotation out of, you know, pure AI trade into other areas of market that we were talking with a guest previously saying, you know, to sectors that haven't been getting a lot of love like health care?

37:06Yeah. So and that's essentially been their preferred way of hedging. My question is, OK, what if we decide that that's not good enough instead of instead of this violent rotation to hide out somewhere? We're just like, let's de-risk a little more. That's when you get the correlation pickup. That's when you get index volatility reflating. Amy, thank you so much. Appreciate it. As always, Amy, Will Silverman, she's a managing director and head of derivative strategy at RBC Capital Markets. This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts.

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