WSJ What’s News - A Blip or a Trend? Making Sense of Monday’s Stock Selloff

Episode Date: August 6, 2024

A.M. Edition for August 6. U.S. stock futures rise and Japan’s Nikkei has climbs 10% after yesterday’s market freak-out. WSJ Heard on the Street columnist Jon Sindreu explains how Monday’s rout may have been exaggerated by trend chasers. Plus, WSJ tech reporter Sam Schechner looks at how Google's antitrust loss could reshape the search industry. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Benefits vary by card, other conditions apply. Global markets claw back losses after yesterday's sell-off. We'll get the latest. Plus how Google's antitrust loss stands to reshape the search industry. Google might not see a huge hit to revenue, but if Google's market share in search goes down, that's going to create new market participants or give an opportunity for Microsoft. OpenAI and ChatGPT could take a bigger share.

And Bangladeshis wrestle over who should lead the country after protests force the resignation of their longtime prime minister. It's Tuesday, August 6th. I'm Luke Vargas for the Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. A day after the S&P 500 logged its worst day since 2022 and Japan's Nikkei saw its biggest one-day drop since the late 1980s, markets are recovering strongly this morning with Nikkei closing up more than 10 percent and U.S. stock futures climbing. And while underlying concerns about the U.S. economy

are likely to linger, Wall Street Journal heard on the street columnist John Sandreo writes, there are reasons to think that yesterday's stock market route may have been exaggerated by trend chasers. And John joins me now with more. John, a blip or a trend? I guess that's the question many people will be asking after yesterday. What do you see unfolding? Yeah, well, that's the interesting thing, which is that these trend chasing trades and particularly bets against volatility, be it against volatility in the S&P in the US or the bet that the Bank of

Japan would keep interest rates extra low forever, basically, when these things go badly and the trades unwind, you get blips. And we mentioned the late 1980s when we had that famous Black Monday, which again, yes, was followed by this big drawdown in Japan. That turned out to be a blip. These fast drawdowns, you compare that to what happens when we get more of a trend, as you were saying of bad economic data that is slowly priced in as a trickle. Those are usually way more dangerous because they're more rational sell-offs. But so far this doesn't seem to be what we're facing here. And John, what do you make of

Wall Street's so-called fear gauge remaining elevated? We're talking here about the CBOE volatility index or VIX, which spiked yesterday and despite the fact that it retreated a bit in the afternoon remains at its highest level since 2020. but as you wrote in your most recent column, it may have been artificially low for some time before that, right? Yeah, the big question was, how was it possible that volatility in the S&P 500 is so low when investors are changing their minds all the time about what the Fed's going to do, there are all these economic uncertainties, uncertainties about inflation, yet all of these changes did not seem to matter.

I like volatility was so low relative to what was going on. And back then, one of the answers seemed to be there are some products out there that have embedded options that basically artificially suppress volatility by betting against it. In this case, it seems that structured products, auto-callables had a role to play. And what ends up happening there is that, yeah, volatility is suppressed for a while, but whenever it breaks out of this range, then it skyrockets, right? So it's

this asymmetrical effect that then leads the most overbought assets to sell out a bit too much. And as I say, this leads to pretty spectacular trading days, but also usually means that you should buy the dip in ways that are harder to ascertain when the sell-off is driven by something more fundamental. But these trades also take usually a few weeks to completely clear out. So the volatility might not be fully over yet. That was Journal Hurt on the Street columnist John Sindreo. John, thanks.

Thank you. Well, in other news that could move markets today, OpenAI co-founder John Schulman is leaving to join rival AI startup Anthropic, which is backed by Amazon, writing that he wanted to focus more on AI alignment, the process of building safety systems so that AI technology can be properly controlled. Schulman is the latest member of OpenAI's leadership team to leave the company in recent months. Saudi Aramco has reported a small drop in second quarter profit, citing lower crude

oil sales volume and weaker margins. The result topped market expectations, however, and the National Oil Company announced more than $31 billion in dividends to its shareholders and the Saudi government, which relies heavily on Aramco's payouts to fund its megaprojects. Aramco shares rose in Riyadh. And the Reserve Bank of Australia has warned that inflation in the country remains stubbornly high, leading it to stop well short today of joining other major central banks in talking about coming rate cuts.

In spite of recently implemented government rebates to cushion against surging electricity prices, the bank is forecasting that inflation will still be firmly above its targeted 2-3% range at the end of the year. And while US economic data says inflation is coming down, it might not always feel like it. What's your view? From food to housing, healthcare to utilities, what costs at the center of your budget are still going up, which aren't, and how confident are you that your overall situation is going to get better? To weigh in, send a voice memo to wnpod at wsj.com or leave a voicemail with your name

and location at 212-416-4328. Coming up, we'll look at what Google's loss in its antitrust fight with the Justice Department could mean for its lucrative search business. We've got that story and more after the break. Need a great reason to get up in the morning? Well what about two? Right now get a small organic Fairtrade coffee and a tasty bacon and egg or breakfast sandwich for only $5 at A&W's in Ontario.

We reported yesterday that a federal judge ruled Google had acted illegally to preserve its search engine monopoly, a major victory for the Justice Department, whose antitrust chief hailed the ruling as paving the path for innovation for generations to come. But what exactly will the ruling mean for Google and for competition in search, especially since the judge in the case hasn't yet imposed any penalties on the company and given that likely appeals could mean it takes years for the case to be finally resolved. It's a question I put to journal tech reporter Sam Schechner.

Well, Google's search engine is its cash cow. That's how it makes money. You type in a search term and it shows you relevant things along with ads that you might be interested in. So if it's not allowed to pay or there's a cap put on what it can pay to be the default ads that you might be interested in. to be the default browser in Safari on iOS devices. That's a big chunk of pretty lucrative traffic for Google. On the flip side, what's the alternative? People are going to end up having to pick their own search engine.

There might be choice screens, which is something we've seen, for instance, in Europe. search engines. So it might get the lion's share of people to pick them. And so possibly the savings and not having to pay Apple and Samsung and others might offset or at least be equivalent to the loss in traffic that they could see. And so Sam, what is the big deal here then? It sounds like Google may not be that hard hit by all of this. So yes, revenue wise, possibly Google will be okay, but longer term, So yes, revenue wise, possibly Google will be okay. But longer term, the point of the lawsuit was not necessarily to hurt Google now, but to create more competition.

And indeed, if Google's market share in search goes down, that's going to create new market participants or give an opportunity for Microsoft. Search is changing, OpenAI and ChatGPT could take a bigger share. for Microsoft. company makes money. That was Journal Tech reporter Sam Schechner. Sam, thanks so much as always. Pleasure to be here, Luke. And crowds in the capital of Bangladesh have been celebrating in the streets after the country's Prime Minister resigned and fled the country. Longtime leader Sheikh Hasina's departure yesterday came after a government crackdown on violent

protests that had sparked a revolt against her rule. The weeks-long demonstrations were led by students protesting a quota system that earmarked government jobs for the families of veterans of the country's independence struggle. At least 300 people have been killed in the protests and hundreds more injured. An army chief has said an interim government would be formed soon and a key organizer of the protests called today for 83-year-old Nobel Peace Prize laureate Muhammad Yunus to be named as its head. And that's it for What's News for Tuesday morning.

Today's show was produced by Daniel Bach with supervising producer Christina Rocca and I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.