“The market's already crashed internally. This is a 1987 crash. There's 40 names in the S&P, 50 world-class brands, that are all down 30% to 70%. And so to me, this setup is they're pinning the index.”
Bloomberg Surveillance · October 2026
Tom Keene asked when the correction so many people fear will arrive. McDonald argues that it already has, inside the index: well-known consumer brands have collapsed while the headline number holds up, which he blames partly on passive indexing.
Transcript
When's the when of the caution that so many people fear?
How do you know when it's coming?
Okay, so let's say we're by no means are we the bear traps, but we're not perma bears. We actually think. The relationship between the index and the Nikes and the Lulus and the Harley Davids, the market's already crashed internally. This is a 1987 crash. There's 40 names in the S & P, 50 world-class brands, world-class brands that are all down 30% to 70%. And so to me, this setup is they're pinning the index. And, Tom, this is the most important part. When you have a year where the index is up a lot, And the internals in the market are poor. If you go long of Basquiat names in the fourth quarter, between now and, say, June, you'll get much better performance from that group. And I think this is part of the whole passive indexing. And they're creating more dysfunctions year in and year out.
So Larry, just to piggyback that too, there's also a thought that there's just a structural change with vol selling, whether it's to capture the premium or whether it's just zero DTE, then the systemic community is still being relatively long, which is also stabilizing realized vol. How much of…
So think about it.
10 years ago, multi-stripe hedge funds, the amount of pods was probably 30% of where they are now. And the thing about these pods is they have very, very strict risk controls. So they have those types of trades on there. They're also, they're long in their index, they're short on their line, right?…
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