You Aren’t Ready for what Stocks are About To Do

Key Concepts

• Retail Investor Behavior: Small investors ("dumb money") were buying heavily during a market downturn while institutions were selling.
• Institutional Investor Positioning: Despite all-time highs, institutional investors remain lightly allocated due to concerns about a market bubble.
• Market Sentiment: Goldman Sachs' sentiment indicator shows significant negative sentiment, indicating a "wall of worry" that markets climb.
• Deleveraging: Traders are taking leverage off the table, which is typically seen before rallies, not at market tops.
• Federal Reserve Rate Cuts: Historically, when the Fed cuts rates near all-time highs, the market has been higher 12 months later.
• Stock Buybacks: Companies are engaging in record levels of stock buybacks, returning value to shareholders and driving share prices higher.
• Valuation Metrics: Comparing the S&P 500 to gold suggests that stocks are not extremely overvalued, despite dollar-denominated valuations.
• Investment Timing: Studies show that attempting to time the market (waiting for crashes) leads to significantly worse performance than investing consistently.
• Active vs. Passive Investing: The speaker advocates for active investing and risk management, contrasting it with passive strategies like dollar-cost averaging into index funds.

Potential for a Massive Bull Market

The data suggests that a significant bull market rally, potentially a "blowoff top," could be imminent. This is supported by several indicators that contradict the typical signs of a market top.

Retail Investor Activity and Institutional Selling

• May 2025 Data: Retail investors ("dumb money") were consistently buying stocks for many weeks during the market's bare market and recovery phase.
• Institutional Outflows: Concurrently, hedge funds sold a record $1.5 billion, and institutional clients dumped approximately $2.7 billion (the second-largest amount in history) during the same period.
• Implication: This indicates a scenario where retail investors were absorbing selling pressure from large institutions.

Institutional Investor Positioning and Market Sentiment

• Goldman Sachs US Equity Sentiment Indicator: Despite the stock market reaching all-time highs, this indicator shows significant negative sentiment.
• "Climbing a Wall of Worry": This phenomenon describes how markets tend to rise when sentiment is negative, as widespread fear and caution are present. Euphoria and greed are typically associated with market tops.
• Stretched Territory: None of the nine positioning measures in Goldman Sachs' indicator are in "stretched territory," suggesting room for further institutional allocation.
• Light Institutional Allocation: Institutional investors remain lightly allocated due to fears of an equity market bubble.
• Wealth Advisor De-risking: Chris Sadial, co-CIO of Ambress, notes that a significant portion of wealth advisor platforms de-risked their exposure since April (when the market was declining) and have not returned to normal equity exposure levels.
• Q4 Inflows Expected: This suggests that in Q4, these assets will likely flow back into equities, buying dips and chasing rallies to compensate for underperformance.
• Money Manager Behavior: The standard operating procedure for many money managers is to "be safe than sorry," leading them to follow trends rather than take excessive risks. This results in them being under-positioned in equities even at all-time highs.

Deleveraging and Leveraged ETF Outflows

• Leverage Reduction: Data indicates that leverage is being taken off the table, which is contrary to what is observed at market tops.
• SOXL Outflows: The triple leveraged ETF tied to semiconductor stocks (SOXL) has experienced massive outflows for months, despite significant gains.
• Indicator of Rallies: Weak institutional allocation and deleveraging are typically seen before substantial rallies, not at market peaks.

Federal Reserve Rate Cuts and Historical Performance

• Rate Cuts Near All-Time Highs: A historical analysis shows that every time the Federal Reserve has cut interest rates while the market was within 2% of an all-time high, the market has been higher 12 months later (100% positive track record since 1980).
• Short-Term Volatility: While shorter-term periods (3-6 months) have seen occasional significant drops (e.g., 20% in 1990 and 2019), the long-term trend after rate cuts near highs is upward.
• Current Situation: The recent Fed rate cut with the market at all-time highs historically suggests further upside potential.

Record Stock Buybacks

• Share Buyback Volume: Companies have bought back more shares this year than in the last 20 years, with projections for a full-year record.
• Apple Example: Apple has been consistently reducing its outstanding shares through buybacks for over a decade, a trend that could theoretically lead to the company going private by 2035 at its current pace.
• Value Return Mechanism: Stock buybacks are a method of returning value from profits to shareholders, similar to dividends. They do not artificially inflate stock prices; rather, the company purchases shares, increasing the price by the amount of cash spent, all else being equal.
• Driving Share Prices: Companies overwhelmingly choosing buybacks over dividends means that value stays in the market, driving share prices higher.

Valuation Perspective: Stocks Priced in Gold

• "Expensive" Argument: The perception of the market being "expensive" is often based on dollar-denominated valuations.
• Dollar Devaluation: The argument is made that if dollars are losing value, then dollar-denominated asset prices will naturally rise.
• S&P 500 Priced in Gold: When the S&P 500 is priced in gold, its valuation appears less extreme. While slightly elevated, it is not near the highs seen in 2021 or during the dot-com bubble.
• Moving Averages: The S&P 500 priced in gold is currently at or just below its 200-month and 500-month moving averages, suggesting it is not in extremely overvalued territory in gold terms.

The Peril of Market Timing

• Study by Charles Schwab: A hypothetical study analyzed the performance of five investors over 20-year periods with different investment strategies.
• Peter (Perfect Timer): Invested at market bottoms, achieving $186,000.
• Ashley (Invested Immediately): Invested cash as soon as it was available, underperforming Peter but with similar results.
• Matthew (Dollar-Cost Averaging): Invested equal amounts over the year, slightly underperforming Ashley due to markets generally trending upwards.
• Rosie (Poor Timer): Tried to time the market but bought at tops, underperforming but still with reasonable results.
• Larry (Never Invested): Waited for better opportunities and never invested, resulting in significantly worse performance.
• Takeaway: Statistically, it is better to be a poor market timer (like Rosie) than to never invest at all (like Larry), even if the market is perceived as expensive or at a top.

Active Investing and Risk Management

• Critique of Passive Investing: The speaker criticizes the advice to simply dollar-cost average into index funds without active management.
• Proponent of Active Investing: The speaker advocates for active investing, hedging when volatility is low and hedging is cheap, taking profits, and using risk management tools like trailing stop orders.
• Individual Investor Advantage: Individual investors can outperform institutions by buying when things are down and up, rather than waiting on the sidelines for a perceived perfect crash.

Invitation to Beta Test and Zoom Call

• Service Launch: The speaker is launching a beta test for a service tracking specific trades believed to have high potential for significant returns in the coming months and years.
• Zoom Call Details: A free live Zoom call will be held on October 9th at 7:00 PM Eastern Time to discuss:
  • A specific category of assets poised for significant growth.
  • How the speaker is generating double and triple-digit returns.
  • Two free stock picks for attendees.
• Registration: Interested individuals can sign up via a link in the video description. Beta test spots are limited.

Conclusion

The presented data strongly suggests that the stock market is not at a top and may be poised for a significant bull market rally. Indicators such as retail investor buying during institutional selling, light institutional positioning despite all-time highs, deleveraging, historical performance of Fed rate cuts, record stock buybacks, and a less extreme valuation when priced in gold all point towards continued upside. The historical tendency for markets to "climb a wall of worry" and the poor statistical outcomes of market timing further support the idea that sitting on the sidelines is detrimental. The speaker advocates for active investing and risk management, offering an opportunity to learn about specific strategies through a beta test and a free Zoom call.