Expectations for a resolution of blockages in the Strait of Hormuz have driven a risk-on rebound over the past 2 weeks. Since 1928, this is the first time the S&P has made new all-time highs within 11 days of falling 5-10% (Bespoke).
Under the hood, breadth was extremely weak, with just 12 companies making new 52-week highs. This feat is historically rare and cautionary, to say the least (highlighted by Scott Brown below).
Some of us oldtimers lived through the 2000 tech bubble when adding .com to a company name was enough to excite speculative inflows before prices imploded. Yesterday, unprofitable shoe company Allbirds saw its stock leap 875% after it announced it was rebranding as an AI company. $BIRD shares were down 99% from their record high of more than $500 to around $2.50 before the announcement.
The jump back to $17 doesn’t restore $4bn in destroyed value nor investment prospects. Today, the stock has tumbled 28% back to $12.10. 
Whatever this is, it’s not investing.
Meanwhile, S&P Global Ratings has just joined a few of us forward-looking analysts in warning that:
Banks’ soaring exposure to hedge funds and trading firms has created “an inherent fragility” in financial markets, with record leverage and the scale of financing advanced by a handful of big lenders adding to risks, S&P Global Ratings…
Record-low consumer sentiment (in grey below since 1980) suggests poor S&P 500 returns in the months ahead (as shown in blue below since 1980). Unless this time is different.
An inflated S&P 500 Shiller Price-to-Earnings ratio (below in black, inverted) has led to below-average annualized returns over the subsequent decade and has been near 40x (like now) only in 2022 and 2000 since 1950. Mean reversion is overdue, unless this time is different.
This cycle also has the US Presidential Cycle to contend with, and the period between April and November has historically been negative for stock markets (as shown below, courtesy of ISABELNET).
One way or another, we are about to find out if this time is different. We must all place our capital bets and live with the consequences.
