Money managers have broken the market. They've stopped doing research. They're all rotations, algos, and call options. That's your entire market right there.
And while this algorithmic circus has created a rush to artificial peaks, I'm telling you straight: we've reached the point where you're just killing time on borrowed time. You're performing a high wire act right now, and I don't know what's going to break it.
Here's what I do know: when it breaks and the market drives lower, you'll find out way too late. That's how it always works.
Look at the S&P 500. We've been sitting inside an algorithmic channel for six months, flatlining with no volatility, no momentum, nothing. Day after day, you get a rush of call buying in technology that drives the market up, flattens it out, leaves it there. Next day, technology goes down, they rush to cyclicals and healthcare, buy more calls.
How many times are we going to play this call rotation game before this thing implodes?
The VIX sits at 14.84. Last time we hit a 14 handle - every single time, 100% of the time - the market corrected 5% in the next 30 days. Go back through history. Every time we hit 14, the market corrects between 5% and 20%.
You need to start scaling out. Don't look for reasons, don't look for technicals, don't look for narratives, don't listen to the Fed. It's a waste of your time. You're bargaining with the devil right now.
The only thing defending the bulls is the weekly indicator - you can't short it just yet. But if you're buying now, the risk-reward is clearly in favor of the shorts. If you buy here, you have to be out within 15 minutes. When it pops two bucks, you get out. If it drops 15, good luck.
The upside versus downside is so skewed that if you bought and worked for me, I'd fire you. You don't have to short - I don't care if you don't short. You just can't buy here.
Only technicals are supporting this market, certainly not fundamentals. And on fundamentals, let me take you where the smart money is looking.
The IMF came out today - an independent organization that's not Goldman Sachs perma-bullish or Raymond James perma-bullish - telling you Trump's tariffs are already stunting world growth. The market's response? Shrugging.
But here's the real kicker: Sonal Desai, the number one ranked bond strategist in the world working for Franklin Templeton, just delivered a reality check that should terrify every "rate cuts coming" cheerleader.
She says investors have completely unrealistic expectations about bonds. The bond market is factoring in rate cuts, and there are no rate cuts coming. I've been telling you this since January 1st - I've been right for eight consecutive months while fighting with people who keep believing the Fed will save them.
Desai thinks fair value for the 10-year yield is between 4.75% and 5%. That means more room for treasuries to sell off, not rally. And she's paid millions because she makes right calls, not because she tells people what they want to hear.
Here's what this means for your positioning: if you give me a 5% handle on treasuries with 10 standard deviation versus a 5% handle on equities with 20-25 standard deviation, I'll take the 5 and 10 a hundred times out of a hundred. It's the mean variance criterion - highest return at lowest risk.
You're living in a delusional world run by algos. Algos have driven the market up 9% - it's a miracle we're up at all this year.
My advice: start scaling out of equities, raise cash, get ready for bonds to go above a 5% handle. Get ready for stocks to come in, and prepare to buy bonds when they hit 5% to 5.25% because that's screaming buy territory.
At that point, you'll see money migrate out of equities into bonds simply because it's a better risk-adjusted trade than stocks.
This isn't about timing the crash - we're not going to crash. This is about recognizing that the high wire act can't continue forever. When professional money managers abandon research for algorithmic rotations, when the VIX hits levels that historically precede corrections, when the world's top bond strategist is warning about unrealistic expectations - you either position for reality or become part of someone else's alpha generation.
You can hate me now, but in a year, let's talk about this.
By Prof. Jeff Bierman, CMT