Latest / The Bear Market Podcast with Fexingo: Surviving Downturns, Buying the Dip, and Long-Term Resilience / The Real Cost of Earnings Season Drift
Transcript
- Lucas: So we are in the middle of earnings season, and yet somehow, the numbers almost feel like background noise. Luna: That's interesting because normally earnings season is the main event. Are you saying it's just not moving the market the way it used to? Lucas: Exactly. I mean, look at the last few weeks. The S&P 500 is up half a percent over the last five days, the Nasdaq is up a full percent, and the small caps are actually leading with a one point one percent gain. But if you listen to the earnings calls, you'd expect a much more mixed reaction. Companies are beating estimates, sure, but the market just seems to be looking through them. Luna: So what's driving that? Is it just that the bar was set so low, or are investors actually shifting their focus elsewhere? Lucas: I think it's a combination of both, but the bigger factor might be that the macro picture is just dominating everything. The real GDP growth number came in at one point five percent annualized, which is down from two point one percent last quarter. That's a meaningful slowdown. And yet, stocks are near record highs. That disconnect is kind of the whole story right now. Luna: So the market is basically saying, 'We don't care about the quarter, we care about what the Fed does next.' Lucas: Right. And that's where the calm in the VIX gets interesting. The VIX is sitting around fifteen, which is historically low. But the VVIX, which measures the volatility of the VIX itself, is up six and a half percent over the last week. That's a sign that traders are getting nervous about the calm. It's like the market is holding its breath. Luna: That's a great way to put it. And speaking of holding your breath, if this episode is giving you a new way to think about the market, the best way to keep these conversations going is to support the show directly. You can do that by buying us a coffee at buy me a coffee dot com slash fexingo. Lucas: Yeah, that genuinely keeps us ad-free and independent, and we appreciate every single person who does that. Now, back to the drift. So why do you think investors are so willing to overlook earnings misses? Luna: Maybe it's because they've been burned by trying to trade the news. If you sell on a bad quarter and the stock bounces back a week later, you learn pretty quickly to just hold on. Lucas: That's a real phenomenon. And it's reinforced by the rise of index funds. When a huge portion of the market is passively managed, individual earnings surprises just get absorbed into the index. The S&P 500 is up over seven thousand seven hundred now, and a lot of that is just passive inflows. Luna: So you're saying the market has become too big to care about a single company's quarter? Lucas: Partly. But there's also a concentration issue. The top ten stocks in the S&P 500 now make up a much larger share than they did a decade ago. So when those giants report, they move the index, but everything else is just noise. And oddly, that concentration might actually be masking some of the weakness in the broader economy. Luna: That's a good point. Because the small caps are up over the last week, but they're still far below their peaks. The Russell 2000 is at three thousand sixty one, which is not exactly a screaming bull market. Lucas: Right. And I think that's the real story here. The market is bifurcating. The mega caps are carrying the index, while the average company is dealing with slower growth and higher input costs. And that divergence is why earnings season feels so disconnected from the tape. Luna: So what should the average investor do with that information? Just ignore earnings and buy the index? Lucas: No, I don't think ignoring earnings is the right call. But I do think you need to be aware of what's driving the index. If you're buying an S&P 500 fund, you're really making a bet on the top ten stocks, not on the health of the broader economy. And that's a risk that a lot of people don't fully appreciate. Luna: And that's exactly the kind of risk that the VVIX spike might be hinting at. The market is calm, but the machinery underneath is getting jittery. Lucas: Yeah, and that's why we're seeing that divergence between the VIX and the VVIX. It's almost like the market is saying, 'We're comfortable with the current level, but we're not sure how long it's going to last.' Luna: So if earnings are being ignored, what would actually break the calm? Is it a specific macro number, or something else? Lucas: I think it would take a real shock. Like if the next CPI report comes in way hotter than expected, or if the Fed surprises with a rate hike that nobody's priced in. Something that forces the market to reassess the whole narrative. Luna: And until then, we're just in this waiting pattern, watching earnings come and go without much impact. Lucas: Exactly. And that's not necessarily a bad thing. It just means the market is in a different phase. We're not in the phase where fundamentals drive price discovery. We're in a phase where macro and liquidity are the main drivers. Luna: That's a helpful way to frame it. So for the long-term investor, the takeaway might be to focus on the underlying businesses rather than the quarter to quarter noise. Lucas: Absolutely. And that's what we try to do on this show. We look at the long-term, and we try to give you the tools to make decisions that are based on fundamentals, not just on the latest headline. Luna: And on that note, let's talk about what's actually happening under the surface. You mentioned the VVIX spike earlier. Can you break that down a bit more for us? Lucas: Sure. The VIX measures the expected volatility of the S&P 500 over the next thirty days. The VVIX measures the expected volatility of the VIX itself. So when the VVIX goes up, it means traders are expecting bigger swings in the VIX, which is basically a bet on uncertainty. And last week, the VVIX jumped six and a half percent while the VIX was dropping. That's a rare divergence. Luna: So it's like the market is saying, 'We're calm, but we're not that calm.' Lucas: Exactly. And that kind of divergence has historically been a warning sign. It doesn't mean a crash is imminent, but it suggests that the market is more fragile than it looks. Luna: And we saw something similar back in 2018, right? That was a period where the VIX was low but the VVIX was elevated, and then we got that sudden volatility spike. Lucas: Right, and that's a good example. So if you're paying attention to these signals, you can at least be prepared for the possibility of a repricing, even if you can't predict the exact timing. Luna: So, given all this, what's your honest takeaway for someone who's listening and thinking about their portfolio? Lucas: I'd say two things. First, don't panic about the earnings drift. It's not a signal that the market is broken, it's just a different phase. Second, be aware of concentration risk. If you're heavily indexed, you're making a bet on the mega caps, and that bet has been very good for a long time. But it's worth asking yourself if you're comfortable with that level of concentration. Luna: And maybe that's the real takeaway from this divergence between the VIX and the VVIX. It's a reminder that the market can be calm and fragile at the same time. Lucas: Yeah. And that's the kind of nuance that gets lost when you're just looking at the headlines. So we'll keep digging into these signals, and we hope you'll stay with us. That's it for today, but we'll be back with more insights on the next episode.