Could A Bond Market Tantrum Derail Stock Prices?

Preface: Explaining our market timing models 

We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

 

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the email alerts is updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

  

The latest signals of each model are as follows:

• Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)*
• Trend Model signal: Bullish (Last changed from “bearish” on 27-Jun-2025)*
• Trading model: Neutral (Last changed from “bullish” on 31-Jul-2025)*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent and on BlueSky at @humblestudent.bsky.social. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.

Subscribers can access the latest signal in real time here.

 

Watch Out For September

August 2025 was good month for U.S. equities. The S&P 500 reached an all-time high and returned 2.1% for the month. It is said that strength begets strength. My Trend Asset Allocation Model, which applies trend-following techniques to global stock markets and commodities, remains on an intermediate-term risk-on signal.

 

As investors approach September, however, they may encounter some seasonal headwinds. Jeffrey Hirsch of Almanac Trader documented how September is the worst month for stocks on a seasonal basis, and “post-election years DJIA and S&P 500 have declined in 10 of the last 18 Septembers”.
 

The most likely trigger is turmoil in the bond market. I am seeing signs of a set-up for a bond market tantrum. 

The full post can be found here.

 

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.  

 

Still on the Road to Financial Repression

The Fed’s annual Jackson Hole symposium is intended for participants to discuss the challenges they face and the long-term implications of different ways of thinking about monetary policy. Much like the ASSA conference held every January or the annual ECB conference in Sintra, it’s full of academics giving papers with Greek letters lying on their sides, except that the presenters at Jackson Hole tend to be top-notch academics presenting to the world’s leading central bankers.

Almost every year, at least one paper creates a buzz among attendees. This year, that paper was entitled, “The Race Between Asset Supply and Asset Demand” by Auclert, Malmberg, Rognlie, and Straub (AMRS). The paper modeled the supply and demand for U.S. Treasury debt, and came to the startling conclusion that “debt could reach 250% of GDP without pushing up interest rates”. 

Coincidentally, the nonpartisan Committee for a Responsible Federal Budget published its August forecast incorporating the effects of the OBBB Act and the latest Trump tariffs. The latest projection sees the debt held by the public rise from about 100% of GDP in 2025 to 120% by 2035, an increase of 2% from the Congressional Budget Office’s forecast. An alternative scenario where much of the Trump tariffs are made illegal by the courts would see debt to GDP soar to 134% in 2035.

I had suggested about a month ago that fiscal dominance and financial repression is almost inevitable: The Fed will be faced with a regime characterized by high fiscal deficits and growing pressure for the Fed to help finance. The Fed will follow the path of the BoJ of cutting short rates, restarting quantitative easing and yield curve control to suppress long rates (see Will the Next Fed Chair Matter Much to Policy?). The AMRS paper raises questions about the level of flexibility available to monetary authorities in the coming years.

The full post can be found here.

 

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.  

 

The Breakout is Holding, Waiting for NVIDIA

Mid-week market update: I was a little hesitant about jumping to instant conclusions about the upside breakout of several market indices in reaction to Chair Powell's speech on Friday, and I wanted to wait for signs of confirmation. We have it now. The Dow and the equal-weighted S&P 500 staged upside breakouts, and they are holding above their respective breakout levels, which are constructive signs.

 

 

The full post can be found here.

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.  

 

Can a rate cut promise overcome Tech's wobbles?

Preface: Explaining our market timing models 

We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

   

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the email alerts is updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

 

The latest signals of each model are as follows:

• Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)*
• Trend Model signal: Bullish (Last changed from “bearish” on 27-Jun-2025)*
• Trading model: Neutral (Last changed from “bullish” on 31-Jul-2025)*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent and on BlueSky at @humblestudent.bsky.social. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.

Subscribers can access the latest signal in real time here.

 

Technology Wobbles

Last week I reiterated concerns about the narrowness of technology leadership. During the week, the market wobbled as it underwent a violent rotation when technology leaders fell sharply. The sector violated a rising trend line and it’s now testing a key relative support level. The weakness was only a matter of time, as relative breadth indicators (bottom two panels) had been deteriorating for several months.

 

On the other hand, the stock market adopted a risk-on tone after Fed Chair Powell opened the door to a September rate cut by shifting the focus to the Fed’s employment mandate: “Downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.” Stock, bonds and gold prices soared and the USD fell after his remarks. Was the tech wobble just a market hiccup?

 

The full post can be found here.

 

To Tariff or Not to Tariff, That Is Not the Question

The purpose of the Fed’s annual Jackson Hole symposium isn’t to make decisions about the short-term direction of monetary policy, but to consider the long run implications of policy. It is in that spirit we consider the short- and long-run implications of Trump’s America First policies. 
 

The primary purpose of Trump’s policy initiatives is to reverse the multi-decade effects of globalization. Branko Milanovic’s landmark study showed that under globalization the main winners were the very rich and the emerging market middle class, while the developed economies’ middle class lost ground. Trump aims to reverse that trend. The question isn’t whether tariffs should be imposed or whether undocumented U.S. residents should be deported, but the trade-offs between the costs of those policies against the long-run effects on growth, inflation and productivity.

Consider the following thought experiment. A major earthquake devastates much of San Francisco and parts of California sinks into the sea. Thousands of the best and brightest in Silicon Valley are lost in the disaster. The NASDAQ opens up down -20% to -30% in the wake of the news. President Trump and the  Fed Chair appear on television to reassure the nation and the markets.

The Fed Chair states that the Fed is prepared to use any and all liquidity measures to ensure the orderly functioning of markets. President Trump offers the following points:

• America needs to look through this event as it’s a tremendous opportunity to rebuild. We are formulating a plan to develop property on the new waterfront.
• There will be plenty of new job opportunities. All of the positions formerly held by foreigners in Silicon Valley can now be filled by Americans.
• By the way, good riddance to all the liberals who populate California.

Trump’s response is a caricature, but here are my points. There is a well-known study which shows that nearly half of Fortune 500 companies were founded by immigrants or their children. Trump’s reshoring initiatives are aimed at returning low value-added manufacturing jobs that went offshore. Replacing Silicon Valley talent isn’t just a matter of numbers of workers, but the quality of worker matters too.
 

How are the markets likely to respond to messages broadly along these lines? Ben Graham once said that in the short run the market functions like a voting machine, which reflects the popularity of different assets. In the long run, it’s a weighing machine, which indicates the value of assets.

The full post can be found here.

 

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.   

 

The Stock Market Turns Spicy

Mid-week market update: Is the much anticipated market pullback starting? The U.S. equity market recently saw a violent rotation from growth to value, led by downdrafts in market darlings like NVIDIA and Palantir. Notwithstanding the change in leadership, I have been monitoring the evolution of the VVIX, or the volatility of the VIX, which spiked above the 100 level yesterday. Past episodes were signals of market weakness of differing degrees.

 

The full post can be found here.

 

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.   

 

The Problems of Narrow Leadership

Preface: Explaining our market timing models 

We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

   

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the email alerts is updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

  

 

The latest signals of each model are as follows:

• Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)*
• Trend Model signal: Bullish (Last changed from “bearish” on 27-Jun-2025)*
• Trading model: Neutral (Last changed from “bullish” on 31-Jul-2025)*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent and on BlueSky at @humblestudent.bsky.social. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.

Subscribers can access the latest signal in real time here.

 

The Loneliness of Technology Leaders

I’ve been raising concerns about the narrowness of market leadership for the past few weeks. The accompanying RRG chart shows the problem.

I use RRG charts to tell the story. Relative Rotation Graphs, or RRG charts, are a way of depicting the changes in leadership in different groups, such as sectors, countries or regions, or market factors. The charts are organized into four quadrants. The typical group rotation pattern occurs in a clockwise fashion. Leading groups (top right) deteriorate to weakening groups (bottom right), which then rotate to lagging groups (bottom left), which change to improving groups (top left), and finally complete the cycle by improving to leading groups (top right) again.

The RRG chart of U.S. sector returns shows the technical underpinnings of the latest bout of market strength. There are only two sectors in the top half, indicating either leadership or emerging leadership. Technology is the only sector in the leading quadrant. While consumer discretionary stocks are in the improving quadrant, in light of the clockwise rotation shown by sectors, it’s unlikely to move into the leading quadrant if its current rotation pattern holds. All other sectors are in the bottom half, indicating laggings status.

 

The full post can be found here.

 

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.   

 

The Fed's Relentless Rate Cut Pressure

Trump’s pressure for a rate cut from the Federal Reserve is growing. Treasury Secretary Scott Bessent said in a TV interview last week, “If you look at any model for the Fed Funds rate, it suggests that we should probably be 150, 175 basis points lower.”

Stephen Miran, who is Trump’s pick to fill a temporary opening on the Fed’s Board of Governors, argued in a CNBC interview that inflation is well-behaved. Miran, who is a strong supporter of Trump’s reciprocal tariffs, highlighted a new White House report that shows prices of imported goods had fallen between December 2024 and May 2025, though reciprocal tariffs were only announced in April. 
Then, the WSJ reported the Trump Administration revealed that the list of candidates for Fed Chair would be expanding: “The hope is that a greater number of surrogates will take to the airwaves and publicly pressure the Fed to lower rates.”

The clincher was the July CPI report. Headline CPI came in a hair under expectations, and core CPI was a hair above expectations. The report set a risk-on stampede in the stock market in anticipation of a September rate cut, though the bond market reaction was far more cautious. In the end, the consensus view settled at a virtual certainty of a quarter-rate point cut at the September FOMC meeting, and a total of two cuts in 2025. 

 

The full post can be found here.

 

 

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.   

 

 

A Rate Cut Buying Stampede

Mid-week market update: Yesterday's July CPI report came in roughly in line with market expectations. Headline CPI was a hair below consensus, while core CPI was a hair above consensus. Even as the bond market greeted the report with caution, the stock market responded with a risk-on stampede in the expectation of a September rate cut.

 

The market reaction was not a big surprise. The latest BoA Global Manager Survey, which was done before the CPI print, showed that the institutional consensus called for falling short-term rates in the face of rising inflation. 

 

The full post can be found here.

 

 

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.   

 

Poised for a Volatilty Spike

Preface: Explaining our market timing models 

We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

   

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the email alerts is updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:

• Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)*
• Trend Model signal: Bullish (Last changed from “bearish” on 27-Jun-2025)*
• Trading model: Neutral (Last changed from “bullish” on 31-Jul-2025)*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent and on BlueSky at @humblestudent.bsky.social. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.

Subscribers can access the latest signal in real time here.

 

Volatility Suppression and Expansion

The accompanying chart shows the hourly swings of the S&P 500 as an illustration of realized market volatility. The grey bars represent instances of large swings of 2.5% or more, which are consistent with market panics and likely bottoms. Realized volatility calmed since the “Liberation Day” sell-off, but began to expand slightly recently.

This is a case of price stability can create instability. Excessive positioning in response to a lower volatility sets up periods of volatility bursts. This is one of those times.

Needless to say, higher implied volatility generally translates into air pockets for stock prices. Here’s why.

The full post can be found here.

 

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.   

 

Another View of American Exceptionalism

Last week, I outlined the case for fiscal dominance (see Will the Next Fed Chair Matter Much to Policy?). U.S. debt to GDP is rising and not stabilizing. In all likelihood, the Fed will follow the path of the BoJ of cutting short rates, restarting quantitative easing and yield curve control to suppress long rates, which would put upward pressure on inflation and downward pressure on the USD. For investors, the best hedge for inflation-adjusted returns will be equities — global equities.

One U.S. based reader asked for greater guidance to regional equity allocation. I replied that, that, when considering long-term investment policy, a passive allocation to global equities would be appropriate as it’s difficult to forecast the long-term outlook for different regional economies in the future.

I would now add that, as an active strategy, investors adopt a barbell allocation in the equity portion of their portfolio to U.S. large-cap growth and non-U.S. value stocks. The top panel of the accompanying chart shows that the U.S. and non-U.S. value and growth cycle tracked each other closely until early 2023 when they bifurcated. Growth outperformed in the U.S., while value began a steady multi-year uptrend. 

 

My active strategy is based on the principle that “the trend is your friend”.
 

The bottom panel shows the relative performance of the two barbell portions of the allocation. U.S. growth is leading the MSCI All-Country World Index (ACWI) benchmark, mainly because U.S. equities have been on a tear against global equities since the GFC. Outside the U.S., EAFE value stocks have been flat against ACWI since mid-2020. 
 

The bifurcate of growth and value relationship is additional evidence of American Exceptionalism in equity performance, which is mainly based on the promise of gains from artificial intelligence. For investors, the key question is how long AI will dominate American equity returns.

 

The full post can be found here.

 

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.   

 

Why I am Sitting Out This Buy Signal

Mid-week market update: Two components of my Bottom Spotting Model flashed buy signals last Friday. The VIX Index spiked over its upper Bollinger Band, and the NYSE McClellan Oscillator reached an oversold condition.

 

In the past, the triggers of two or more component buy signals were signs of tactical bottoms. This time, my inner trader is staying on the sidelines. Here's why.

 

The full post can be found here.

 

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.   

 

This Will Not End Well, But When?

Preface: Explaining our market timing models 

We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

   

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the email alerts is updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:

• Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)*
• Trend Model signal: Bullish (Last changed from “bearish” on 27-Jun-2025)*
• Trading model: Bullish (Last changed from “neutral” on 10-Jul-2025)*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent and on BlueSky at @humblestudent.bsky.social. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.

Subscribers can access the latest signal in real time here.

 

This Will Not End Well

I have documented in the past how the U.S. equity market is undergoing a frothy advance. There are many ways of measuring froth. Goldman’s Speculative Trading Indicator has risen to its third-highest level in its own history, which will lead to a “this will not end well” condition. I don’t like “this well not end well” warnings because they only highlight the risks without the obvious signs of a bearish trigger. I would highlight Bob Farrell’s Rule 4: “Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways”.

 
There is no doubt that “this will not end well”, but when? I explore the set of current risks and opportunities open to traders.
 

The full post can be found here.

 

  

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.    

 

Will the Next Fed Chair Matter Much to Policy?

As reporters tried to elicit the Fed’s reaction function from Jerome Powell during the July post-FOMC press conference, Bloomberg’s Michael McKee asked a very different question relating to the juxtaposition of fiscal and monetary policy in the years ahead:

McKEE: Do you have concerns about the cost to the government of keeping rates elevated for longer in terms of interest rate charges?
POWELL: We have a mandate, and that’s maximum employment and price stability. It's not something we do to consider the cost to the government of our rate changes. We have to be able to look at the goal variables that Congress has given us, use the tools they have given us to achieve those goals. That's what we do. We don’t consider the fiscal needs of the federal government. No advanced economy's central bank does that...If we did do that it wouldn’t be good for our credibility nor the credibility of U.S. fiscal policy. So it’s just not something we take into consideration. 

The question highlights the difficult head facing the U.S. Treasury and the Federal Reserve in the coming years. How will the government cope with higher interest expense from the growing debt, and what steps will the Fed take to cushion the blow? Powell reverted to the textbook answer of the Fed’s dual mandate, which also subtly underlined the importance of central bank independence.

Such an approach may not be sufficient for future Fed Chairs. Trump has already made it clear he wants the Fed to cut rates. Regardless of who he appoints, the next Fed Chair will face increasing pressure to bend monetary policy to the needs of the growing interest burden from fiscal policy. While it’s highly likely that the next Fed Chair will be more dovish than Powell, it may not matter given the pressures. Future Fed policy is becoming subservient to fiscal policy.
 

Welcome to the era of Fiscal Dominance.

The full post can be found here.

  

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.