Explained below is how the market can go up even more in the coming 3 months.

If inflation moves down really fast + the FED not cutting rates fast enough — that can cause real rates to rise which likely = equities sell off.

Delinquencies are NOT rising.
Credit risk remains low

"Credit spreads remain at cycle lows" Therefore, the amount of growth risk in the system is INCREDIBLY low right now.

<aside>

Credit spreads measure the extra yield (interest rate) investors demand to lend money to a risky borrower (Corporate Bond) instead of a safe borrower (U.S Treasury Bond).

For example:

10-year U.S. Treasury = 4%
10-year Ford bond = 6% → Credit spread = 2 percentage points (200 basis points). </aside>
Then we have the FED cutting into those 2 previous points. Which is pushing equities higher.

BUT the critical factor here is foreign direct investments. Which is why the tariff news led to such a sell-off.

Foreigners putting in money into US Assets is at an all time high right now.

<aside>

Question: is it "putting into" at all time high or "now deployed" at all time high?

</aside>

Everyone is a FED watcher, and no one is really thinking about "what about one of the largest holders for investments in US Assets?"

These external international buyers are one of the biggest risks.

The End Game:

FX volatility has compressed significantly this year.

If a negative international trade unwind occurs: *watch FX Implied Volatility it will blow out first...(up or down?)

"When there's too much money in the system, it becomes unsustainable"

Watch:

FX Implied Volatility
MOVE index
*How Bond activity impacts the above

AND MOST IMPORTANTLY, watch:

The Dollar $

We've seen the dollar fall over the last 4-5 months. The dollar has sold off as macro-liquidity in the system has expanded - and also as the tariff risks has increased.

And that is a signal of LARGER risks under the surface.

When dollar AND equities sell off at the same time, that is an indication of how much positioning exists in cross border flows.

Makes sense, because if foreigners sell off their US Assets then that is LIKELY what you should see.

Also watch the Dollar against the Chinese Yuan.

Because the 2 biggest trading partners in the world are China and the US. Everything functions in between them.

So if we have a change in the Yaun (stronger dollar against the Yuan): (or USD/CHN chart breaks to the upside)

That can cause a type of unwind that has never been seen before (uncharted territory)

<aside>

The credit cycle is in full swing Inflation is not coming in above expectations yet The Fed is cutting Capital is moving to risk assets

</aside>