The S&P 500 posted a clean breakout last week to new records after surviving a July momentum stock bust and basically churning in a 3% range for nearly three months:
- The liquidation of the hedge fund Situational Awareness after its leveraged AI-hardware positions unwound was exactly the sort of offering to the market gods that frequently puts in a market low.
- Still, there needs to be recognition that the highs achieved by those momentum stocks in the second quarter came from massive leverage and crowding that won't quickly return, not from pure fundamental improvement.
- Sources of mine such as the 'mystery broker' David Snyder and Tim Hayes of Ned Davis Research warn that stocks are showing some market topping behaviors.
Market Memo
The predominant condition of the stock market across all relevant time periods is "up." The S&P 500 index has posted a positive return in more than 70% of all calendar years:
Market history shows that most stocks rise, but many investors should be prepared for a "lost decade":
With forecasts of corporate earnings rising 30% in 2026, it is hard for the market to get into deep, lasting trouble:
Are the market gods satisfied?
However, the highs achieved by momentum stocks were driven by massive leverage that cannot quickly return:
