Sell-side Indicator (BofA) is almost on Sell, Vix is still…

PodcastThe Compound and FriendsJosh BrownOct 6

The discussion weighs resilient earnings and persistent demand for GPUs and data centers against weak market breadth, near-record valuations, and a Fed bias that remains tight. Speakers highlight low volatility despite investor doubt, while examining sentiment indicators, mega-cap concentration, FICO's competitive position, and gains among refiners. One speaker sees a possible volatility spike before Thanksgiving, while another sketches a scenario in which an October selloff gives way to strong earnings and a year-end rally.

Market Breadth Market Valuations Investor Sentiment Market Volatility Technology Stocks Interest Rates

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Key Takeaways

The speakers say the GPU-obsolescence bear case has weakened: older chips remain in use, rental prices have not fallen, and shortages persist. They also cite Micron’s higher next-year guidance, firm orders, and the chip replacement cycle as support for continued data-center demand, while noting that new projects could face moratoriums and environmental red tape.

The guest cautions that the market-cycle clock resembles October 1, 1987, when bad outcomes tended to occur with growth and inflation in a similar position while the Fed was raising rates; although a pause looked likely through at least October, Neil Dutta’s view as relayed by the speaker was that the Fed’s bias remained tight. Separately, a speaker expected a possible VIX spike between the discussion and Thanksgiving, citing October seasonality, the midterm election, and a slow-motion rate shock, while another described a hypothetical October flush followed by strong earnings and a year-end rally.

Speakers described a resilient market near its high—less than 5% below it—with record-high earnings above consensus, 36% Nasdaq earnings growth, and a VIX around 16 despite rising rates; one speaker characterized the market’s roughly 17- to 18-year history as having sent the message, “I dare you to sell.” The guest’s chart also showed the VIX flatlining at 16.39 since March while currency volatility was higher, and speakers pointed to strength in Apple, NVIDIA, Microsoft, and Meta as helping pacify the S&P 500.

Two sentiment measures offered contrasting signals rather than precise timing calls: Bank of America’s Sell Side Indicator rose in September to within 30 basis points of a sell signal, but the speaker cautioned it is not a precise market-timing tool. Savita Subramanian’s note said the AAII bull-bear spread had fallen to minus 25 percentage points, about 1.5 standard deviations below its 10-year average, and that subsequent 12-month S&P 500 returns had historically been slightly stronger at similarly depressed readings than at similarly elevated ones, though the relationship was noisy.

GEO-POLITICS

App Store Antitrust — A speaker describes a possible threat to Apple if a successful antitrust case eventually forces it to open the App Store and charge less than a 30% fee. The speaker says this would take years and require a powerful official; it is a hypothetical, not an imminent change.

“Apple with the App Store. I was thinking that, like, somebody somebody very powerful, it would probably come from the democrats…”—

TECHNOLOGY

GPU Depreciation — The speakers say reports of rapid GPU obsolescence were greatly exaggerated: older GPUs remain in active use, rental prices have not fallen, and a shortage persists. This challenges the bear thesis that chipmakers overstate earnings by assuming chips retain value for too long.

“Alright. Fast forward to today. A 16 z did a state of the markets, and they showed the reports of obsolescence greatly exaggerated…”—

ECONOMY

Fed Bias — The guest says the market-cycle clock was in a zone similar to October 1, 1987, and cautions that bad outcomes tend to occur when growth and inflation are in a similar position while the Fed is raising rates. The Fed looked likely to pause through at least October, but the speaker relays Neil Dutta's view that its bias remains tight.

“On 10/01/1987, dun, our market cycle clock was in a similar zone. We're not calling for a crash…”—

MARKETS

Selling Penalty — A speaker says the market's roughly 17- to 18-year history has sent the message, “I dare you to sell,” and notes it was still less than 5% below its high. This is the speaker's reading of recent market behavior, not a guarantee that selling will continue to be punished.

“Well, I would say I would say if you're listening to the market and you're being at all intellectually honest about what's going on over the last seventeen years, almost…”—

Low VIX — The speakers describe a market showing little fear, with the VIX at 16, but substantial doubt. They point to contracting valuation multiples despite record-high earnings above consensus, upside surprises, increased forward guidance, and a 14% year-to-date market gain.

“You said something on the show last week that I really wanted to expand because I thought it was the most important comment of the show…”—

Sell Signal Near — Bank of America's Sell Side Indicator rose in September and was 30 basis points from a sell signal. The speaker explains that it tracks sell-side strategists' average recommended equity allocation in a balanced fund, while cautioning that it is not a precise market-timing tool.

“The sell side indicator... Thank you, John. Sell side indicator increased in September and is now just 30 basis points from a sell signal.”—

FORECASTS

October Volatility — One speaker expects a possible VIX spike in October, later extending the timing to sometime between the discussion and Thanksgiving, while acknowledging the call is based partly on instinct. The speaker cites October's historical volatility, a midterm election, and a slow-motion interest-rate shock. Separately, another speaker offers a hypothetical in which an October market flush is followed by strong earnings reports and a year-end rally.

“Funniest outcome would be everybody gets all worked up, and then we have an October flush, and then earning season starts, which is right around the corner…”—

Market Banter And Show Setup

Josh and Michael open with light banter, introduce the show, thank viewers, and explain their weekly market-discussion format.

Sell-Side Indicator Near Sell

The hosts discuss Bank of America's sentiment gauge nearing a sell signal, while noting that bearish survey readings and shrinking valuation multiples complicate a simple contrarian warning.

VIX And Mega-Cap Calm

Despite rising rates and volatility in currencies and bonds, the VIX remains subdued, which the speakers attribute partly to the outsized stabilizing influence of mega-cap technology stocks.

Fed Tightness And October Risk

A market-cycle framework flags risk when growth, inflation, and tightening align, though the hosts debate whether known risks could trigger a selloff or earnings could fuel a year-end rally.

Michael Burry Bear Case

The hosts consider why Michael Burry remains bearish and revisit his concern that accelerated depreciation could overstate AI-related earnings.

GPU Demand And Data Centers

Evidence of continued GPU use, tight capacity, rising guidance, and active data-center construction leads the speakers to question the thesis that chip obsolescence will undermine AI investment.

AI Debt Finds Buyers

A heavily oversubscribed Paramount bond offering and strong stock performance at major technology firms suggest credit investors are still willing to finance AI infrastructure.

FICO's Monopoly Under Pressure

The hosts explain FICO's extraordinary long-term performance and examine how mortgage lenders' adoption of VantageScore threatens its pricing power and entrenched role.

Mortgage Scoring Competition

VantageScore's lower borrower costs and growing use at Rocket and United help explain FICO's sharp repricing, while the hosts compare its regulatory vulnerability with other powerful franchises.

NVIDIA And Market Concentration

NVIDIA's enormous index weight and buybacks underscore how concentrated market leadership has become, while active managers' benchmark constraints limit their ability to overweight the stock.

Weak Breadth Beneath The Index

The hosts review deteriorating equal-weight performance, broad drawdowns, and declining participation, even as a small group of mega-cap technology stocks keeps indexes near highs.

Breadth Divergence And Volatility

Michael argues that past breadth divergences often resolved with lagging stocks catching up, while Josh still expects a possible volatility spike amid rate, election, and seasonal risks.

Consumer Discretionary Warning

The speakers focus on weakness in consumer-facing names, especially American Express and other important retailers, as a more meaningful caution signal than explainable housing or rate-sensitive declines.

ARK Risk Appetite And Defense

A composite of ARK ETFs signals renewed appetite for speculative growth, prompting disagreement over whether mega-cap technology now serves as a defensive holding for investors.

Refiners And The VIX Call

The hosts highlight exceptional gains in Valero, Phillips 66, and Marathon, driven partly by diesel strength, then close with Josh's forecast for a VIX spike before Thanksgiving.

Show Announcements And Sign-Off

Josh thanks viewers, previews upcoming Compound programming and a New York event announcement, and encourages listeners to stay subscribed and follow the show.