A Synthetic Bull Rally Cannot Afford To Stall
So How Manipulated Was It?
Raging Bulls Run On Groupthink
A Synthetic Bull Rally Cannot Afford To Stall
Early Mid-Week Market Thoughts
So How Manipulated Was It?
April gains were historic.
“the largest inflow of systematic capital into markets ever” Michael W. Green
Mechanical buying you say?
"As we have been tracking over the past several weeks,[the April advance, the 12th strongest monthly gain overall since 1960,] was supported by an estimated $251 billion in forced buying from 401(k) flows and systematic strategies, which created a powerful non-discretionary tailwind for equity beta as those funds piled back into index-related products.”
“However, our models continue to indicate that much of that support has now largely run its course.”
As I said March 31st: “Flows Over Fundamentals”
And again April 14th: “Flows Over Fundamentals Part 2”
I have a big post I have worked on this weekend on the bigger passive investment flows and mechanical buying that will shine a light on VALUE and AI trend-long portfolio construction. For now, a news item that caught my attention will only make this theme of mechanical buying/passive investing WORSE:
On S&P 500 (April 30th proposed) Rule Changes:
“The S&P 500 is removing long-standing profitability requirements — the “enshittification” of the index. This change potentially turns the index into a “dumping ground” for Private Equity to offload unprofitable, highly leveraged companies onto retail index investors.”
Interlude…
“The S&P500 has indeed “sold out.” By proposing to kill the long-standing “profitability” requirement for the S&P500 (already weakened by the use of operating vs GAAP earnings), the S&P500 has offered itself up as the dumping ground for private equity.”
As posted by Michael W. Green from his pithy & witty subStack this weekend.
Yes, ladies and gentlemen. That means the S&P Dow Jones Indices are seriously considering waiving the GAAP profitability requirement (positive net income in the most recent quarter + sum of prior four quarters) for "megacap" companies!!
Plus, shortening the post-IPO waiting period to 6 months. You know why: for the upcoming large IPOs like SpaceX, OpenAI & Anthropic that may not yet be profitable but are hugely subscribed and investors need exit liquidity.
That’s the market we have, not the one we want. But I remind you of this fact because you can’t easily trade against a market of grift AND structural flows - even if myopic AI bulls think it’s on purely organic fundamental buyers.
I try to help you separate these influences into compartments so you can zoom out to see the big picture trends, the twists & turns along the way, and ultimately help you to be more risk aware. And not to short just because it’s unfair and ponzi-like.
There is perceived ‘safety’ in the herd for many. Even if they don’t understand what they own.
