The Market Is Rising — But Not Why You ThinkAs we start the week above 6,000 for the S&P 500, we see a pure momentum environment that gets dangerous if you're not playing defense.
Good morning: There is much to cover to start the week… which is why this is happening early. We’re back at 6,000 on the S&P 500… The headlines say stocks are rallying. Beneath the surface, the forces driving this market are far from fundamental… What’s worse? They’re far from stable. You won't find it here if you're looking for a clean narrative about earnings growth, consumer resilience, or productivity miracles. Instead, you'll find a market levitating by mechanical flows, leverage-driven rebalancing, and a sudden stampede back into high-beta tech. Let's walk through the three charts that paint a picture of a fragile, momentum-driven market. 1. Systematic Funds: Underexposed and TrappedAccording to Goldman Sachs, systematic U.S. equity exposure remains near cycle lows. These owners are the CTAs, risk-parity funds, and quant-driven models that buy or sell based on trends and volatility, not narrative or valuation. And that’s the problem…
If this rally keeps grinding higher, they are forced buyers. They HAVE to buy stocks. Their models will trigger more exposure, driving even more demand. It's a feedback loop: the higher we go, the more they have to buy, regardless of macro conditions. This chart suggests that the market isn't being led by confidence… It's being dragged upward by blind algorithms chasing momentum. And that's bullish, until it isn't. 2. Hedge Fund Leverage: The Pressure CookerNow, this is wild. Hedge fund gross leverage is in the 99th percentile — meaning they're nearly all-in. However, net leverage (longs minus shorts) is still moderate, which means funds are juggling many positions and will be forced to rebalance if volatility picks up.
Think like this: hedge funds stand on a seesaw with cinderblocks in each hand. If prices keep rising, they'll have to cover shorts and buy more longs to keep their positioning balanced, further extending the market's upside. But if anything spooks the market… geopolitical shock, inflation surprises, or a bond market tantrum… they’ll need to de-risk. Fast. And when everyone heads for the exit at once, the exit window is small. Think of trying to drain an ocean through a bathroom window. We have an over-leveraged and under-cushioned market. A sentiment shift could go from bad to brutal in 48 hours. 3. The Tech Stampede: FOMO in Full SwingNow, this is where it gets wild. According to Goldman, hedge funds have made their biggest notional long purchases of tech stocks in over a decade.
The sector, which was being dumped for months, is suddenly the belle of the ball again, with long positions outpacing short sales by 1.6 to 1. This is what FOMO looks like. These aren't careful reallocations. These are panic buys to chase performance into quarter-end. The herd is moving, and nobody wants to be left behind. This is manic buying in Nvidia, SMCI, and other high-momentum names. The crowd that dumped tech a quarter ago is now piling back in. This isn't rotation. It's desperation. So What's the Big Picture?Right now… you're watching a rally built on:
There's no earnings story here. No productivity revolution. Just flow-based levitation and algorithms herding liquidity uphill. Can it go higher? Absolutely. The structure supports further upside until volatility strikes or yields spike. But when the unwind starts, it won't be gradual. It will be violent, fast, and unforgiving. If you're long, ride the wave, but hedge your downside. If you're short, tread carefully — the mechanics are against you. And if you're in cash, don't chase until you understand the risks behind the curtain. This is a momentum market, not a bull market. Let’s look at the state of the market…... Continue reading this post for free in the Substack app
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