worldne: from bloomberg headquarters in new york, i'm caroline hyde. joe: i'm joe weisenthal. romaine: and i'm romaine bostick. let's look at where the markets ended the day and the week. a record rally earlier in week gives way to two straight days of declines. joe: the question is, "what'd you miss?" caroline: apparently investors should have seen this coming. they've been out for weeks,

calling for the fact that these stockmarkets had gone too far, too fast. the darlings of 2020 finally took the hit. apple, amazon. tesla. gain ondia, the biggest the s&p this year. companies, along with energy, lead us into that fall. were you the naysayer? joe: i've been predicting this since april 1. my predictions finally vindicated. but it was just so intense. we talked about this yesterday. you had huge companies jumping every day. this is like the reversal that we got. energy had a bad week. infotech down on the week. the only gainers, materials and

utilities. financials also outperforming. that really is the story. really hot sectors finally got sold. you have such incredible moves. it is not surprising even if that is a disappointing cliche. romaine: it looks like some of this could have been related to how short a lot of institutional managers and hedge funds and investors were. you are talking about 23 straight weeks where hedge funds had been short s&p futures. the latest data covers the weekly period that ended on tuesday. they actually flipped. 61,000 futures contracts. you can see how it sort of starts to taper. weing previous cycles where seen these booms and busts, this

is the same trajectory read seen. we saw this in the big selloff back in 2018. once the hedge funds start to get cold feet, that has kind of the opposite effect. it takes some of the short money out of the market. in good news is that usually short order, there is some type of pickup and buying. caroline: that is really what everyone has been discussing today, whether or not the call softbank,aken out by was potentially amplifying the ramp up in these stocks. we are now seeing perhaps options signaling further volatility still to come. nasdaq volatility on the rising. hint of still something to come, bigger moves ahead, potentially still being priced into that. joe: joining us is bloomberg

process at reporter sarah ponczek. it is a cliche. we also it coming. this is a healthy correction. but that chart that caroline showed, even prior to the selloff a couple days ago, volatility starting to rise alongside extreme buy-in, that was kind of weird. >> there were warning signs, but it doesn't matter as long as you are right. if you look at what is happening, measures of implied volatility on the s&p 500 and the nasdaq, we were seeing those measures rise consecutively as we saw the benchmarks rising. that is not usually what happens. usually volatility falls. aroundeories are tossing about why this might have been happening? one is what caroline was mentioning. we had some massive buyers in

the market. that left dealers having to hedge so they were buying the underlying futures of the s&p 500, the nasdaq, but on top of that they were having to buy volatility gauges as well. two is maybe why we saw the moving in tandem. people were may be getting nervous and positioning for a selloff. take your pick. however, there is no doubt that there were warning signs. go down the's conspiracy rabbit hole even further. traders, iobinhood don't know what you call them. like softbank or masayoshi son getting the blame. according to people familiar

with the matter, and this was a very large story that hit today, softbank had been buying billions of dollars worth of bullish call options on giant u.s. tech stocks. bloomberg reported back in august that softbank was going about buying into these names aggressively. so that is one end. you look at the other. there has been plenty of evidence showing that you actually look at total options trades that have been placed by very small traders. they have exploded higher. it could be interrelated. it is possible that softbank places a large trade and then retail traders hop on the train and fuel this drive together. you look at total open interest

in some of these very large tech names. higher at the fastest pace since late 2018. romaine: we remember it well. sarah ponczek, great to have you in the studio. we are going to continue this conversation and talk about what is leading. leavitt isryan director of investment strategy at invesco. we have him coming up after the break. this is bloomberg. ♪

romaine: welcome back to "what'd you miss?"

it was one of the most volatile weeks we've seen since at least march. we talked about all the conspiracy theories, whether masayoshi son is driving up options prices -- joe: on his robinhood account. romaine: that would be the scope of the year. but there were a lot of more fundamental valuation signals that this market was sending before the selloff began. again, maybe we don't need to overthink this. up sorket was screaming hard. if you look at nasdaq 100 stocks, absolutely surging. almost all of them were around 80%. again, just a lot of things. was massively overbought.

i'm looking at where apple was. well into the 80's. it is now back down at 54. we did see some dip buying today. joe: this is the big question. briancome to welcome in leavitt. earlier in the show, caroline was looking at a chart showing hedge fund positioning. so many signs that either the bulls have gotten really bullish or the bears have thrown in the towel and are no longer bearish. is there any left to buy at this point? two days is not really that big of a deal, but is sentiment at a point where there is not much skepticism left or are there people out there who haven't caved yet? >> i think since the beginning

of 2018, investors have pulled $334 billion out of equities. signals that things had gotten near-term overbought. we had a huge rally off the march 23 bottom. that doesn't happen without some volatility on the way. but there's still a lot of money that has favored bonds. we became trichet to say that the last cycle was one of the least loved on record. and certainly i think we started a new cycle on march 23. that largely seems unloved when you look at how american households have positioned. romaine: when you look at this week, we got a lot of data on the ism and factory data and the jobs report. when you look at the economic data and some of the moves we had in the market, did anything

whereeek really change this market and this economy was headed? >> it does not. things were not as good as they felt on wednesday night. they weren't as bad as they felt on thursday. this is going to be a drawnout recovery. there may be some fits and starts and days where things feel less certain. but i believe a new cycle has emerged and that will play out over many years. 2011, there2009 to was nothing great about the economy. this will play out in a similar fashion. some fits and starts along the way like we saw in 2009 and 2010. i think the driving force of this is that this protracted recovery means that the fed is not raising rates anytime soon.

there is not any big access that builds in the system. real yields are negative. we've got a pretty good demographic wave in this country. investors seem to be largely favoring bonds. that suggests a slow growth accommodative fed. we were talking about the conspiracy theories in the market. we all love that before a long weekend. what does the options market spell for you? does it make you nervous that you can get these technical signals that run awry? up 61% off the bottom, the nasdaq 76%, so

volatility is to be expected. the way i view volatility and drawdowns, they have been -- they happen all the time, but they don't just emerge out of nowhere. yearse had seen in prior had been more on the monetary policy side. ist we are dealing with now the fiscal policy uncertainty, the uncertainty around the election, and around the reopening policies. enough uncertainty to create market volatility. run-up inly given the these markets. i don't think you have these types of moves in markets without occasionally getting hit. bullishness aside, this is a bifurcated market. you could be in software stocks

and do well, but you could also be in banks and not have seen anything. what leads the way if we get economic recovery? should one just stick with the winners or will there be a catch up on the more cyclical aspects of the stock market? up.here should be a catch i always ask myself, what is the direction of the economy, and what is the policy response going to be? slow, youtable or want to favor the true disruptive growth companies. if the economy is going to improve and policy will become more accommodative, that should help the more cyclical parts of the market. i would expect that to happen into 21 anyone.

over the long-term, the recovery gives way to a week expansion. you will have some shifts to favor the parts of the market that have been out of favor. growthrm, it is the true disruptive companies. joe: brian leavitt, thank you very much for joining us. this is bloomberg. ♪

caroline: our theme today is the volatility throughout the past week or couple of days. heavy selling in stocks. some areas caught a bid. etf's and high-yield credit outperformed. biggest equity run bond fund is purchasing some bonds from companies and industries that were the most pummeled in the crisis. joe: this has been the story.

the fed vigorously came in and provided this backstop. as long as the economy eventually does recover, and that is the multi trillion dollar question, then these companies should be able to service the debt. questionhe sort of key for some of these troubled names. fundne: you talk about a where managers had sort of been talking about a big shakeout for years. but you talk about a bond fund trying to invest with treasuries hovering right around 70 basis points on your benchmark and negative real yields, i guess it kind of makes sense. joe: for more on credit markets, joining us, the vice president and portfolio manager at capital management.

thank you so much for joining us. itself astablishing the lender of last resort. huge rally. now the question is, is the economy strong enough so that these companies remain solvent and pay their bills? how are you feeling about the credit market now, and do you feel there are opportunities? >> thank you for having me. we do think there are opportunities. we've seen a serious recovery from the march 23 date. spreads, thento corporate index prior to march, we hit 93 basis points in january. -- we sitbasis points at about 128 basis points today. we do think there is room for

tightening. we have an accommodative fed. we do think the recovery has not been uniform. there are companies that have been left behind. judicious in finding those companies and risk adjustment returns. caroline: how do you get the methodology to work there? we are seeing people pushed out further and further on the risk curve. we've also seen that some areas of the market, they haven't really been able to raise money at all. perhaps rightly so. >> we look at companies that have good, strong balance sheets, have a lot of financial flexibility. that then on the theme triple be company today is different from 10 years ago.

they are big companies. a lot of times they are rated as a decision. the cost is so much less now. in a lot of ways, it makes sense. we look at those companies that we think can maintain their current ratings, maybe even benefit from the environment we are in and get upgraded, and companies that are generating cash flow and have management teams that are judicious. romaine: with a lot of the issuance we've seen so far, there was expectation that some folks would use that money to pay down some of the debt or return it to shareholders. we haven't really seen that. i'm curious as to whether we see that show up in the numbers down the road. >> that is a great question.

if you look at this dramatic spike in issuance we've seen this year, through the end of july, $1.2 trillion, which exceeded the entire 2019 issuance, we are really at breakneck speed in terms of the issuance. but one thing that does give us solace, the use of proceeds that has gone to share buybacks and dividends activity from management companies, that has hit a six-year low. so we do think the issuance that we saw was companies being prudent, taking liquidity while they could get it to brace for the potential slowdown as a result of covid. but we have not seen that going out the door to share buybacks and dividends yet. joe: how closely are you following the politics situation in d.c.?

do you have any investments which are predicated on further support, or do you have a view on the need for further support? it is certainly something we keep a close eye on. especially in the sectors that have been hit the most by covid. airlines, hospitality, restaurants, etc. benefitedstries have from some of the fiscal policies. continue to rely upon those going forward. but that is a relatively small percentage of our portfolio. there's plenty of opportunities in healthy industries that don't rely on a fiscal bailout from d.c. but it is something we are paying attention to. caroline: great to have you.

we wish you a very good long weekend. and a reminder, you can subscribe to our weekly podcast this weekend. find our best content each friday. ,t is available right here wherever you listen. what a week. what are you preparing for on tuesday? joe: just going to wake up and look at where tesla is trading. i figure that is going to be the story. it is such a beacon of all the speculative enthusiasm. that has become the first thing i look at. romaine: i think we are in the same suit. joe: i just noticed. it is weird. romaine: stop going into my wardrobe. don't forget, we've got some inflation coming up. the ecb as well. we will see how that affects markets. caroline: can we talk fx or something else?

i don't want to go across asset. that is all from "what'd you miss?" joe: bloomberg technology is next. romaine: have a safe labor day weekend. this is bloomberg. ♪

emily: welcome to bloomberg technology. i'm taylor riggs in for emily chang. but stocks bouncing back still closing at a two week low as big tech shares all selling off. and we are awaiting a news conference from president trump. we will bring you highlights from that as it happens. but first let's get back to the markets.