Broadcom captures the whole zeitgeist of the moment right now: Interactive Brokers' Steve Sosnick
Let's turn to tech dominance today and Mag 7 performance. Our next guest is interested in a lineup change. Let's bring in Steve Soznik, Interactive Brokers chief strategist. Steve, welcome. Good to have you in. Great to see you in person. Call what what would a line change be? What are you looking for? In January, I proposed that the Mag Seven really change its roster and that was to add Broadcom and ditch Tesla. And I think I feel vindicated by that recently. And the reason for that at the time was not just the Tesla was underperforming, it was that Broadcom captures the whole zeitgeist of, of the, of the moment. Right now, it's an AI stock much more, much more. So even though Tesla maybe one more in the future, Broadcom is one in the present. Does it say something that idea? Does it say something more about Broadcom than Tesla? Yes, it does. It's more just about, you know, what Broadcom is. Broadcom is part of this whole movement. And what we're seeing now is this, this great combination of Momo and FOMO driving the market higher and Broadcom is part of it. Tesla is not. Right now, to me, part of the premise of some group like the Magnificent 7 or the old Fang getting anointed is that these are the companies that have a long term enduring advantage. And you don't have to overthink it beyond that. If we're going to be shuffling the members all the time, like what's the point in a way? Well, I mean, it's a fictional character and yeah, right. I mean, so you know what? So we can, we can do whatever we want with it. And I just felt that that would represent and it does represent us better right now in terms of what's going on. But is, is it also worrisome that the breath is so poor and that the concentration is so high extraordinarily so, yes, because I think what we've had here is essentially a pair of binary outcomes. Either we're going to keep getting driven higher by by tech and momentum or this fails and there's and because we're so stretched right now, there's not a lot of room that it becomes sort of like everybody trying to crowd out of a out of a fire exit or something like that. And that really, that really is the problem. That's why I look at this as if you want to get the, if you want to follow the momentum, go ahead. But this is where, when, when volatility is low, when options are cheap, this is maybe where you want to be looking at. I do wonder about the dynamics of that in the sense of people want to complain about the fact that it, you know, the index maybe isn't reflective of, of the, of the typical stock. So let's say the big ones that have been driving the upside do get tired, do break stride, do correct hard. Does that mean that Target and Bank of America and all the stocks that haven't been participating are going to go down more because they, you know, the median stocks underperform the S&P quarter to date by like 8 or 9 percentage points already. It depends how the exit, if it occurs, happens. Because remember, anytime you buy, let's say Spiders, which is, which is, you know, the generic basic ETF, you're putting 25 to 30% of your money in tech whether you want to or not. And so if you get a bit of a route in the tech sector, my fear is that people get out of get out of SPY, they get out of queues and that drags the other stuff down, creating probably better value in the value stocks. But in the short term, that could get nasty if it occurs. I had a question about sort of behavioral economics. As we mentioned this Barron's piece over the weekend, looking at Gen. Z Yep, which is who they've grown up either in, in a pandemic or being told the planet's going to end because of climate. And as a result, their risk tolerance and their FOMO is extraordinarily high. Is that do you see that as sort of cornered into a certain element of the market that's not material to the broader market or or not? Yes and no. I think most of the, as the parents of Gen. Z people, I would say that that they do at least my kids have an understanding of what's, what's kind of real and what's kind of fake. The you know, the one thing I will say is when you're very young, you can take more risk. You can, you can chase GameStop, you can chase these other situations. I don't think that's, you know, like part of a healthy balanced diet, so to speak. But you know what, this is the age where you can where you can eat junk food and get away with it. So, you know, they give it a try, but I'd like to think they come back to, you know, what I would consider more established type of investment. Well, kind of related question at Interactive Brokers, what do you see in terms of retail sentiment right now? Our customers love volume and volatility. That's basically where we see where we see the action. So but we're not seeing either, but we see it in individual names. So NVIDIA, GameStop, AMD, Tesla, these are these are like the perennial leaders where GameStop is more of a recent one. But, and every so often you will find on our top 25 most active list, some name that I have, I have to look up because it went up, you know, tenfold in two days and everybody jumped in and started trading around it. So our customers, are they trading losing money on those meme trades? Are they doing well? I think it's kind of I, I don't have any insight into whether they're making or losing money. The fact that they're still here means that there's kind of 0 sum on something. It's probably 0 sum to I mean to Carl's point about James yeah, I think the one of the arguments is that, you know, if you feel like housing is chronically unaffordable and I feel like I'm never going to be able to have that yet kind of orderly accrual of wealth lottery psychology might as well take over. And you know I can I can either sort of look for the long shot and bet it and I'm OK if I lose or, you know I can I can maybe hit the score and I'll be you know, I'll be one of the lucky the crypto too is kind of fed in crypto. Crypto is entirely part and parcel that. And I will say my my jet, one of my Jen's ears is basically does social media for a range of crypto company. Oh yeah. And my comment is what do your customers get out of it? But they he's, he's doing rather well doing this because because that's that's what they respond to. Attention is the product. Exactly. Before we let you go, Steve, really quick, are you seeing election driven hesitancy creep in? Not yet, although we do see it reflective in the VIX futures curve where you see a bump in October, bearing in mind that VIX is always looking ahead 30 days. So mid-october, VIX is looking at the election. We do see that bump. It's not. It's not there yet, but I do think that bump is going to get more pronounced as we get closer to the election because I think the range of potential economic outcomes stemming from the election is quite wide.