Aging Bull

The real economy is getting stagnant.  Ex-AI, there is not much investment.  The little bit of real growth that is out there is just underreported inflation.  It is a bit scary to see such a weak real economy when there is a $2 trillion fiscal deficit with stocks going up 20% a year for the last 3 years.  It is clear now that the private equity bubble has popped, and the ramifications are starting to be felt.  Private credit growth will be going down, as there was a lot of misallocated capital in private equity.  With big cap tech collecting their rents on the rest of the economy, there is a huge number of smaller companies fighting for leftovers from the fiscal largesse, and struggling.  

But the uptrend in large cap US stocks remains strong.  Yes, you are seeing some cracks in a big chunk of non Mag 7 stocks.  In particular, we got a much touted Hindenburg Omen in the middle of last week, with really bad breadth for an up day.  While those are symptoms of a weakening market, its not an all-clear sign to short the SPX.  You want to see more HOs and the uptrend flatten out a bit more to set up a potential playable pullback.  

The pullback in mid October made investors less bullish, with talks of credit crunch, tariff fears again, and of course October seasonality fears.  But the market gave investors very little time to buy the lows, showing underlying strength.  If you didn't have resting buy orders before the dips, you probably missed the BTFD opportunity.  It is now November.  The seasonality bears will now be quiet.  Stock buybacks return.  It is not a time to overthink it.  The odds favor the bulls.  It won't last for long, but it probably lasts until we get close to November opex.  

With the market at such high levels, the upside from here doesn't look great.   You are seeing more demand for Mag 7 call options, with put-call skew for the group at very low levels.  Historically, forward returns during those periods have been way below average.  This environment arises from both complacency and a FOMO performance chase.  This bid for Mag7 call options after an extended run higher is reminiscent of late 2021 and late 2024.  Both instances preceded big drops in the market.  

Retail investors are aggressively positioned for more upside.  BofA private client asset allocations show clients holding the highest equity allocations in its recorded history, matching levels seen in late 2021.  

There are some bullish catalysts on the horizon.  The fiscal package passed earlier this year (OBBB) provides a lot of economic pump for Q1 and Q2 of 2026, which will help US growth.  This doesn't include potential reduction in tariffs which are likely, in my view, after the Supreme Court makes their decision on the Trump tariffs later this year.   The Supreme Court decision is an underrated event coming up.  A lot of investors aren't even thinking about it, but it is almost like a free call option for US stocks.  If the tariffs remain, then its the status quo.  But in the more likely case that the tariffs are ruled illegal, that is an immediate shot in the arm for the corporate sector in the US, with immediate tariff refunds, and a drastic reduction in future tariff expenses.  And that is not priced in here.  That would be a big boost to the already positive fiscal impulse lined up for 2026.  

With both the fiscal juice from the OBBB and no more Trump tariffs, you could be looking at an environment where investors get excited and push stocks even higher.  I don't think you see a blowoff top due to positioning, but you could see a grind higher in the first few months of 2026.  

If we do get that grind higher in the 1st half of 2026, that would take the market to truly nosebleed levels, just as the fiscal juice starts waning in the 2nd half of 2026.  That would set up a brutal 2nd half of 2026 for the markets.  

We are in the late stage of the bull market.  Its going to get choppier, and the uptrend will flatten out.  But its going to be a minefield for those blindly shorting betting on a burst of this bubble.  I see particular weak spots in retail heavy names and sectors, such as the highly speculative quantum, nuclear, AI data center, and space names.  In addition, I particularly see that the crypto space is saturated with bagholders now and will be trading heavy relative to Nasdaq/SPX.  For index shorts, its going to be tricky.  Betting against retail, who are up to their eyeballs in risk exposure, will be easier than betting against the foundation of the bull market, which is the SPX/NDX.  

Mostly in cash, looking to short speculative names on a rally in the coming weeks.