No More Excuses

After a long string of fake headlines and market manipulation, the US and Iran have finally signed the MOU.  Oil is now in the 70s.  The wall of worry over war, high oil prices, and supply chain disruptions has been obliterated.  There are no more excuses for this market to go down.  No, a hawkish Fed doesn't count.  Warsh put out some tough talk on price stability, but its empty words without real action.  Most don't believe he has the balls to hike rates.  I tend to agree.  But if this bubble doesn't pop this year, Warsh could definitely do a couple rate hikes.  The SOFR curve is pricing in about 2 rate hikes for the next 12 months, so even if he does hike, its mostly priced in.  

On Monday, after Trump confirmed that there was a deal over the weekend we got a huge gap up in SPX/NDX.  I was a bit surprised by the size of the gap up, and it held for all of Monday.  But just as I was getting ready to add on Wednesday FOMC day, it started to weaken on Tuesday and didn't give me the premium entry to add to shorts.  Most of the non-AI tech stocks that I was looking to add shorts to had topped out on that Monday gap up, and were lagging the market badly by Tuesday.  With some short exposure already, I will not chase weakness to add.  Still staying away from the strongest AI momentum stocks, as those are the most dangerous to short in this environment.  Stocks like MU, SNDK, WDC, STX don't trade like speculators have a full allocation yet. 

This market still trades narrow, and the winners continue to be concentrated in non-NVDA AI names that have gone parabolic since April.   You would have expected the market to broaden out with oil plunging.  But it continues to be the momentum stocks that continue to lead this market.  Unlike 2025, the Mag7 are not leading this market higher.  

The most popular and heavily owned names among retail investors are lagging.  That is definitely a sea change from how the market has behaved since the Covid lows in 2020.  Your average retail investor is loaded to the gills with Mag7 stocks.  There is no urgency to add more.  Big cap tech is spending all their free cash flow on AI capex, not stock buybacks.  Without buybacks and retail investors piling in, the Mag7 are a shadow of their former selves.  In the 2nd half of 2025, the Mag7 was outperforming the NDX.  But that outperformance has reversed to underperformance vs the NDX this year.  

 

In the meantime, we are seeing near record levels of dispersion in the stocks in the MSCI All Country World Index.  

April and May 2026 are right up there with December 1999 and February 2000 in dispersion rank.

 

This is what Robert Shiller described as the "gambler's excitement", where a few assets go up huge, attracting gamblers to the market.  It is those huge winners which drag the index higher, while the majority have mediocre returns.  

This gambler's mentality is causing more leveraged buying of equities, leading to surging funding rates.  

 

Funding spreads are spiking, something you saw around the local tops in January 2018, December 2024, and October 2025.  

Firsthand, I see the rampant speculation by market punters every day in premarket trading. Random low float stocks, many of them Chinese, have been going up 100s of percent in the premarket on no material news.  

Wall Street is feeding the ducks while they are quacking.  Huge equity supply projected for 2026 and 2027.   

We are seeing token costs drop significantly over the past 2 weeks.  There is news that the hyperscalers like META, AMZN, and MSFT are now emphasizing more efficient use of tokens, tightening token budgets, and no longer rewarding employees for mass, indiscriminate token usage.  Also hearing that more cost efficient LLMs, like DeepSeek are gaining popularity.  This has negative ramifications for the AI capex buildout, as the Anthropic and OpenAI LLMs are more hardware intensive.  

After this week's FOMC, the market has changed their view on Warsh.  They think he will try to talk tough on inflation at the beginning to gain some credibility from other Fed board members.  That could mean that the July FOMC meeting could be hawkish and lay the groundwork for a September rate hike.  Warsh also will issue less forward guidance, making the FOMC meetings that much more volatile.  There will be more uncertainty going into those meetings, so likely more selloffs going into FOMCs than in the past.  

The Iran deal bull catalyst has now been used up.  This is significant as there is no longer positive headline risk to deal with if you are short.  It also makes investors more complacent.  We are now in the post June opex seasonal window of weakness.  Post June opex and post September opex are the 2 most bearish times of the year for stocks.  A lot of put protection has expired.  If we do get a dip next week, will look to cover shorts to re-short in early to mid July.  

There will be a substantial partial lockup expiration of SPCX shares after their earnings report in early August, so that could be another catalyst for an August decline.  Base case is that we chop up and down between SPX 7300 to 7600 for the next 3-4 weeks.  I expect that chop period to end by mid July, and a potential waterfall decline towards SPX 7000 from mid July to mid August.