Artificial intelligence hype crashing headfirst into reality. The unwinding of the yen carry trade. The softening US consumer. 

There were a lot of targets for finger-pointing amid the early-August meltdown-that-wasn’t. But Monday saw the eighth straight day of gains on the S&P 500, marking its longest winning streak of the year so far. Now the index, having recovered all its losses from earlier this month, sits just less than 2% away from the all-time peak it reached in July. As the dust settles, it’s becoming clear that the finger-pointing may have been a smidge aggressive.

The Vix Is In

Doom-and-gloom headlines aside, it appears traders ultimately saw the AI sorta-crash simply as an opportunity to buy the dip; Nvidia has now rallied some 30% since an early-August low, leading the charge for a megacap tech rebound. Meanwhile, Toby Gresham, investment counselor team lead at Citi Private Bank, said on CNBC this weekend that the unwinding of the yen carry trade has mostly “washed through,” and Nomura Holdings, Japan’s biggest brokerage, told Bloomberg that hedge funds and other investors are already pouring back into the carry trade game.

Last week, the Commerce Department also released new US retail spending data that pummeled expectations and suggested the American consumer isn’t slowing down just yet (a fear also allayed by a strong earnings beat from Walmart on Thursday). “Even the perma-bears would have struggled to find much in the slew of data released over the past week that would justify recent recession fears,” Neil Shearing, chief economist at Capital Economics, told the Financial Times on Monday.

You would be forgiven for feeling a fair amount of macroeconomic whiplash. Whether or not you should expect future volatility remains an open question:

• The Cboe Volatility Index — a.k.a. the Vix, or Wall Street’s fear gauge — has fallen nearly 24 points since spiking on Aug. 5, which marks its longest decline since November 2008. Some experts are already saying that the spike was more likely a reflection of a quirk in how the gauge is calculated rather than a true reflection of trader panic.
• But go a little deeper and there remains some doubt. The “Vvix” index, which is calculated on derivatives tied to the actual Vix, has similarly fallen since an Aug. 5 peak, but remains trading above its long-term average, per a recent FT analysis.

“We do think that volatility should normalise, it is mean reverting. But the speed at which [the Vix] came down was a bit too far too fast,” Maxwell Grinacoff, US equity derivatives strategist at UBS, told the FT. “We’re still not out of the woods yet.”

Hole in One: One thing that may or may not shoot some volatility back into the markets is Jerome Powell’s Friday speech in Jackson Hole, Wyoming, which he will give after spending the week conferencing with business leaders, economists, government officials, and fellow Federal Reserve bankers. The Fed is all but guaranteed to finally cut rates next month, though the question remains by how much — and Wall Street is sure to hang on to every word that Powell says in search of clues.

GM is sick of trying to be a tech company.

Multiple outlets reported on Monday that GM is cutting over 1,000 workers, equivalent to roughly 1.3% of its total workforce, from its software and services division. This comes just a few weeks after the company announced it was abandoning an ambitious plan to build a robotaxi sans steering wheel.

Hard Times for Software 

Monday’s cuts, which include around 600 jobs at GM’s tech hub in Detroit, did not come entirely out of the blue. Bloomberg reported last week that the company had begun layoffs in China, and the cuts included roles in the R&D division. GM, like many legacy automakers, has also softened its electric vehicle goals. Overall it paints a picture of a company that’s less keen on futuristic, techy advances and more focused on making cars. 

On software specifically, GM seems to be making something of a U-turn. Previously, GM had been on a software hiring spree:

• In 2022, the company announced it planned to hire more than 8,000 tech roles, and boasted about poaching workers from Big Tech. “There was a time where … we were getting picked off by big tech,” Iwao Fusillo, GM’s then-chief data and analytics officer, told The Detroit News, “It’s now the other way around.”
• The company continued this trend into 2023 — aided by massive job cuts in Silicon Valley — with a big emphasis on software. “As the industry moves to electric and autonomous vehicles, it relies largely on software development to create the technology, apps and over-the-air updates. Many of our openings in recent years have been in this area of the business,” a GM spokesperson told the Detroit Free Press in January 2023.

Data Dealerships: GM’s software will be coming under a pretty harsh spotlight soon, as last week Texas Attorney General Ken Paxton sued GM, accusing it of illegally sending drivers’ data to insurance companies. In March, GM announced it would stop sending detailed driver data to two data brokers that were then selling that data on to insurers — but clearly Paxton wants to really drive home a point.

When the National Football League’s Raiders get a yellow flag, they get set back 15 yards. For the world’s most famous corporate raider, it’s more like $1.5 million.

Famed activist investor Carl Icahn agreed to pay $500,000, and his Icahn Enterprises $1.5 million, to settle civil charges from the SEC claiming he failed to disclose pledging-company stock as collateral on personal loans.

Tale of the Tape: Activist Short-Seller vs. Activist Investor

Icahn is one of the world’s most famous investors, who rose to prominence as a “corporate raider” in the 1980s after he led a hostile takeover of Trans World Airlines and sold off its assets to repay debts. A failed hostile takeover bid of US Steel followed. Through the ‘90s, his reputation mellowed out to an “activist investor” focused on whipping companies into shape and boosting shareholder value.

The SEC, however, said Icahn wasn’t giving shareholders the full picture. The regulator charged him with pledging around 51% to 82% of Icahn Enterprises shares outstanding to secure billions in margin loans without disclosing this to shareholders or the SEC. Icahn and his company agreed to settle the charges; they did not admit wrongdoing. In fact, they immediately lashed out at the activist market player that may have landed them here:

• The SEC launched an inquiry into Icahn last year after activist short-selling firm Hindenburg Research accused Icahn of “Ponzi-like” behavior in a report. What it found was that Icahn Enterprises failed to disclose Icahn’s pledges of its securities, which began in 2018, until 2022, and that Icahn failed to file mandatory amendments to filings until last year.
• Icahn and his company dismissed Hindenburg’s “false report” Monday, asserting their settlement doesn’t mention “a ‘Ponzi-like’ structure” and concerns an “unrelated disclosure violation.”

Shake it Off: Shares in Icahn Enterprises fell over 5% in early-morning trading, but rebounded later in the day, ultimately gaining 1%. There’s one ship short-seller Hindenburg couldn’t bring down.