The Disappearing Sellers: Bullish Signal or Market Trap?
Sellers vanish, institutions chase the rally, and crypto surges. Is this the top, or the beginning of broader participation?
Wall Street is buzzing.
Bloomberg reports that Goldman Sachs and Bank of America have both raised their 12-month S&P 500 targets to 6,900 and 6,600 respectively. Sometimes it feels like they pull these numbers out of their you know what.
While the analysts adjust to a rally they never saw coming, seasoned investors know to pause when consensus starts to harden. Especially with sentiment indicators sitting at extreme bullish readings as we head into a period of time that historically has been weaker for stocks.
While the S&P 500 has closed in the green 80% of the time in July over the last 20 years, it has posted gains in August and September just 58% and 53% of the time respectively.
This isn’t a call to sell everything. I’m still very much bullish over the long term. But when everyone crowds to one side of the boat, it pays to check your balance.
Let’s break down what’s happening beneath the surface, and what disciplined investors should make of it.
Crypto inflows top $1 billion
In another sign of a potential short-term peak in bullish sentiment, crypto markets saw $1 billion in inflows last week alone, marking the 12th straight week of net buying. Total AUM is now at $188 billion, a record high.
BlackRock’s Bitcoin ETF IBIT 0.00%↑ is now entering overbought territory, which often precedes pullbacks, not just in crypto but often in broader risk assets as well.
New tariffs, same game
The U.S. announced new tariffs on goods from over 20 countries this week, while extending a key pause in enforcement to August 1st. This gives businesses time to reposition supply chains, and the administration time to negotiate additional trade deals.
This is not yet a stagflation shock. In fact, real time inflation readings have been trending down from their peak in May. But it is part of a broader trend of reshoring and protectionism, one that favors companies with domestic production and pricing power.
The market reaction to some of these announcements has been muted, as the consensus remains that these tariffs will be negotiated lower.
Whether that’s true or not remains to be seen. I would also submit that it matters less than many think. Our job as investors is to find companies that will adapt and thrive regardless of whatever happens with tariffs.
Equity positioning nears neutral
The S&P 500 hit a new all time high a few weeks ago, yet equity positioning indicators are just approaching neutral after months of investor hesitation.
A reminder that many institutional investors missed out on the recent rally, and why I believe any pullback in the weeks ahead will be short-lived.
In fact, as analysts start to change their tune, Wall Street will likely try to engineer a pullback so they can pick up shares on the cheap. So remember, volatility is an opportunity, not something to be feared.
The productivity surge continues
Why am I long term bullish? In part because productivity in the U.S. economy continues to pace above-trend. This is something we flagged months ago, as new business formation continues to surge and companies get serious about leveraging AI (see our update from July 7, 2024).
Increasing productivity means:
Higher long-term earnings growth
Wages can rise without stoking inflation, a win for workers and consumers
Government debt burden becomes more manageable, as faster growth boosts tax revenues
Interest rates can stay lower for longer, since inflation is more subdued
And that’s extremely bullish for long-term stock valuations. It also helps explain how markets can rise even with tight monetary policy.
Drone warfare: a new growth industry
The Pentagon is quietly undergoing a transformation. Drones are now central to modern warfare, and the U.S. military is spending billions to modernize. (Read)
This isn't just a geopolitical story, it’s an investment trend. One that we’ve been on to for some time. Back in October, I flagged the Global X Defense Tech ETF SHLD 0.00%↑ as one way to play this trend. It’s up 59% since vs. just 7.6% for the S&P 500 over the same time period.
Expect increased defense spending to continue to benefit companies in aerospace, AI, and surveillance.
And if you missed our favorite growth pick in the space, check out our write-up from May: A $5 billion defense stock on the move.
Final thought
When everyone gets bullish at once, it's tempting to chase. But successful investors don’t predict, they prepare.
Markets ebb and flow, so if you missed any of our picks on the way up, you’re not too late.
While analysts try to stay relevant and institutions play catch-up, our edge comes from following the plan.
Dollar cost average. Rebalance with discipline. Follow the rules. And keep your buy list ready.
Let the marketers sell predictions. We’ll stick with the strategy.