Latest / The Bear Market Podcast with Fexingo: Surviving Downturns, Buying the Dip, and Long-Term Resilience / How AI Trading Agents Are Reshaping Wall Street
Transcript
- Lucas: The future of Wall Street is here, and it's not just the big quant funds anymore. Startups and brokers are building AI agents that trade 24/7, and the numbers we're seeing this week suggest those algorithms are already driving the tape. Luna: You mean fully autonomous bots making buy and sell decisions around the clock? I read that CNBC piece this morning — it said some of these agents can learn and adapt in real time. Lucas: Exactly. And look at what's happened in the last five trading days: the Nasdaq dropped nearly 3 percent, while the Dow actually gained over 1 percent. That kind of sharp rotation isn't just fund managers rebalancing — it's algorithmic, ai driven flows reacting to the same signals faster than any human. Lucas: Before we dive deeper, a quick note — this show is ad-free because of listeners like you. If you find value in these market breakdowns, you can support us at buy me a coffee dot com slash fexingo. It keeps us independent and free from advertiser pressure. Luna: Yeah, and that honestly lets us be more direct about what's happening. No need to sugarcoat anything for a sponsor. Lucas: So back to the AI agents. The VIX jumped 9 percent in the same five-day window, closing at 18.14. That's not panic territory, but it tells you the machines are pricing in more uncertainty — and they're acting on it faster than any human could. Luna: So these agents are essentially amplifying the moves we already see? If the Nasdaq starts selling off, the bots pile on quicker? Lucas: That's the risk. Many of these agents are trained on the same data — price action, news sentiment, order flow. When they all see the same signal, they can create herding behavior. We saw that in the May flash crash in mid-caps, and there's no reason it can't happen again with ai driven retail platforms. Luna: And this isn't just hedge funds anymore. Robinhood, Interactive Brokers — they're all rolling out ai assisted trading tools. Some let you set goals like 'generate 10% alpha in a bull market' and the algorithm figures out the rest. Lucas: Right. The barrier to entry has cratered. A few years ago you needed a PhD team and a server farm. Now a startup can offer a bot trained on terabytes of market data for a monthly subscription. That democratization is real, but it also means more capital chasing the same short-term signals. Luna: Speaking of startups, Kalshi is in the news today — they're predicting Meta will highlight smart glasses on their earnings call and avoid social media policy. That's another AI use case: event contracts trained on language models. Lucas: And that feeds back into the trading algorithms. If Meta's earnings surprise to the upside, the bots will instantly adjust their positions on the entire FAANG basket. It's a feedback loop between prediction markets, AI agents, and spot prices. Luna: But not every company is embracing AI as a trading tool. Visa just announced it's cutting 7% of its workforce, partly because AI is automating tasks. That's the other side — AI displacing jobs rather than creating new trading strategies. Lucas: That's an important distinction. The same technology that powers 24/7 trading bots is also handling compliance, reporting, and even some advisory roles. Visa's move is a reminder that AI's biggest impact in finance might not be on the trading desk but in the back office. Luna: So what does the typical retail investor need to know about all this? I mean, if I'm a long-term holder, do these AI agents affect my portfolio? Lucas: Only if you let them. The short-term noise gets amplified, but if your time horizon is five or ten years, the algorithmic churn is largely irrelevant. The danger is getting spooked by a 3% selloff that's half machine-driven and selling at the bottom. Luna: That's where the VIX at 18 can be misleading. It's elevated, but the S&P is still at 7,451. Not exactly a crash. Lucas: Right. The VVIX — the volatility of volatility — has actually come down a bit, to 98.55. That suggests the market doesn't expect a volatility explosion, just a gradual uptick. So the AI agents are adjusting to a moderately nervous market, not a panicked one. Luna: And let's not forget the yield curve. The 10-year is at 4.69%, the 2-year at 4.33% — that's still a positive spread of 34 basis points. No recession signal there. Lucas: Exactly. So the macro backdrop is actually benign — real GDP growing at 2.1%, nominal GDP at $31.86 trillion. The AI trading agents are operating in a fundamentally healthy economy, which means their herding may create opportunities for disciplined investors. Luna: Opportunities like buying the dip when the bots overshoot? That's kind of the show's whole motto. Lucas: Precisely. When the Nasdaq gets hit 3% in a week partly because algorithms are front-running each other, that can be a decent entry point for names with solid fundamentals. But you have to do the work — don't just buy the index because it dropped. Luna: So the takeaway: AI agents are here, they're making markets move faster, but they don't change the long-term value of companies. And if you're a long-term investor, you can actually use their volatility to your advantage. Lucas: That's the idea. But keep an eye on the regulatory side. The SEC is already looking at ai driven market manipulation. If these agents start colluding unconsciously — trained on similar data, making similar moves — we could see new rules around transparency and accountability. Luna: You mentioned the SEC — any recent enforcement actions or proposals we should know about? Lucas: Nothing concrete yet, but the concept of 'algorithmic insider trading' is being debated. If an AI scrapes public data and trades on it before a human could process it, is that fair? Regulators are still figuring out the framework. Luna: It feels like we're in the early innings of a massive structural shift. Ten years from now, will human traders even be relevant? Lucas: Some will, but the game is changing. The edge will come from understanding the algorithms, not just beating them. So for now, stay informed, don't chase the noise, and remember: the machines are just tools. The best investors still think in years, not microseconds.