{"id":228973,"date":"2025-08-15T12:49:36","date_gmt":"2025-08-15T16:49:36","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=228973"},"modified":"2025-08-18T05:33:28","modified_gmt":"2025-08-18T09:33:28","slug":"nihilism-or-meatballs","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/nihilism-or-meatballs\/","title":{"rendered":"Nihilism or Meatballs?"},"content":{"rendered":"\n

Yesterday was an odd and exciting day for me.  For the first time in my (long; too long?) career, I was on the NYSE floor to participate as an IPO began trading.  As a result, and despite my location, I was not as plugged into the intraday market movements as normal.  Frankly, I was quite surprised to see the stock market\u2019s reaction \u2013 or lack thereof \u2013 to the PPI report. <\/p>\n\n\n\n

For those of you who have noticed my love of classic comedies, it should be little surprise that two of them came to mind when I was considering how stocks were essentially ignoring the newest inflation data.  One was The Big Lebowski<\/em> and its subplot about nihilists.  The other was Meatballs<\/em>, a far lesser film, but featuring Bill Murray\u2019s rant about \u201cIt just doesn\u2019t matter!\u201d Take your pick \u2013 they\u2019re both saying essentially the same thing.<\/p>\n\n\n\n

First, a digression about the IPO.  I have been privileged to be among the groups ringing the opening and closing bell at Nasdaq a few times.  One of them was not when IBKR went public \u2013 I was helping to keep our then-critical market-making operations functional \u2013 but I was there when we re-listed on that exchange and on at least a couple of other recent occasions.  I\u2019ve also been part of the bell ringing ceremony at the Montreal Exchange at least twice.  All were quite special, but to be fair, a historic building makes an impossible-to-duplicate backdrop.  Even the team at the NYSE\u2019s rival exchange group Miami International Holdings (MIAX), a relative newcomer, were impressed.  (Full disclosure \u2013 IBKR owns a stake in MIAX, and as a result, I represent our firm on the board of its MIAX Pearl options and stock exchange.)<\/p>\n\n\n\n

Spending the morning at a celebratory gathering in relatively unfamiliar surroundings meant that I was by no means as plugged into my customary news and market data sources as usual.  The irony, of course, was that I was at an exchange amidst a group of other exchange and market professionals, but the location and schmoozing hardly replaced sitting at my desk analyzing data.  (That said, it was much more fun, and the food was better.)  Thus, I was rather surprised to see that stocks had generally yawned at the stunning +0.9% monthly jump in both the headline and Core Producer Price Index levels.<\/p>\n\n\n\n

It seemed to me then, and now, that there is no way to sugarcoat an unpleasant surprise of that magnitude.  On Tuesday, stocks and bonds<\/a> both cheered the essentially in-line CPI report.  Expectations for a 25-basis point rate cut, which were already robust, increased to a certainty.  In fact, by Wednesday, Fed Funds were pricing in a slight chance for a 50bp cut at the September 17th<\/sup> FOMC meeting.  After the PPI report, that expectation reverted to reflecting similar expectations to those that prevailed prior to the CPI.  The yield curve reacted similarly, with bonds giving back virtually all their prior gains.  Yet stocks meandered around unchanged levels throughout yesterday\u2019s session, never giving back more than a small fraction of Tuesday\u2019s rally:<\/p>\n\n\n\n

3-Day Chart, from 8:00am \u2013 5:20pm EDT daily, September ES futures (red, left);10-year (white, right) and 2-year (blue, right) US Treasury Yields<\/em><\/strong><\/p>\n\n\n\n

\"3-Day<\/figure>\n\n\n\n

Source: Bloomberg<\/em><\/p>\n\n\n\n

Major stock indices have been exhibiting something of a ratchet effect.  They move higher, often sharply higher, on good, or even just OK news, but only falling modestly \u2013 if at all \u2013 on bad news.  That certainly describes the outcome of yesterday\u2019s trading, where two separate groups of rational investors interpreted the same unpleasant data in a completely different manner.  We see something similar today, with stocks only declining modestly after receiving the latest set of concerning surveys from the University of Michigan:<\/p>\n\n\n\n