Weekly Commentary: TACO And Dumpling

2025-05-31 03:45:42 ET

Summary

• The S&P 500 traded within 3% of February's record high in Thursday trading.
• Extraordinary late-cycle resilience is only fitting of history's greatest Bubble.
• April's instability and quick recovery showcased the trumpeted private market advantage of being insulated from the whims of the public marketplace.
• Market rallies, tariff pauses, and China deals and resets notwithstanding, the Trump administration presents clear and present market turmoil risk.

The S&P 500 traded within 3% of February's record high in Thursday trading. To be sure, the rally off April lows has been nothing short of spectacular. Like the "old days" (aka September to February). Nvidia. MAG7. Manic AI and crypto. Heck, the Broker/Dealer Index traded to record highs a week ago. Junk bond and leveraged loan prices have recovered along with equities. The month saw a record ($153bn) month of May investment-grade bond issuance. Financial conditions have loosened significantly.

Looks too much like a set-up. Risk markets have quickly settled back to their baseline: disregard myriad risks until one strikes between the eyes. Squeeze the shorts. Buy the dips like you mean it - with options, of course, offering the best bang for the buck. As they have throughout history, speculative Bubbles are just phenomenal at ensuring no one is spared.

My concerns have not been assuaged. If anything, there is ongoing confirmation of my analytical thesis. I see an equities Bubble incapable of orderly adjustment, which only boosts odds of "disorderly" - market disorder beyond last month and last August. Quick policy responses reversed both nascent de-leveraging episodes. But all the speculative leverage remains - festering and susceptible. Meanwhile, looming economic and Credit Cycle days of reckoning are closing in....

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