No signal yet to stand down

Every cycle has its mirages—those moments when traders, sun-stung and data-dizzy, mistake heat shimmer for a turning tide. Right now, that’s what this bond market looks like: yields rising, curves steepening, and yet risk assets refusing to blink. It’s the financial equivalent of a storm that thunders over the mountains but never reaches the valley—noise in the distance, but no rain on equities.

Liquidity, not logic, is still writing the tape. We’ve seen this movie before. Back in 2010–2011, post-QE1, markets ignored fragile fundamentals because the river of central-bank cash was wide enough to float every asset class. Fast-forward to today: trillions parked in money markets, corporate treasurers sitting on piles of cash, and investors still waiting for a reason to leave the safety of 5% yields. But bull markets aren’t built on fear—they’re built on forced participation. When momentum pays, sideline money becomes tinder, and the smallest spark of FOMO lights it. That’s where we are now.

Equities remain above all major moving averages, the core tape unbroken. There’s chatter of small-cap exhaustion, but that’s fatigue, not reversal—a sprinter catching breath before the next leg higher. The real trade here isn’t about price; it’s about time. “Calendar compression” is the invisible hand now guiding risk: eight weeks until Thanksgiving, ten until the year’s over. Earnings start in two, the Fed cuts likely come by the end of October. In market terms, that’s not much runway, and every fund manager knows performance anxiety hits hardest when the clock runs down.

So the marginal bid remains upward. The only real tail risk is the Fed blinking too slowly—delivering fewer cuts than the curve implies. But that’s a tail you can spin. With the new regime expected at the Fed, the direction of real rates is expected to be southbound. And lower real yields, in a world starved of safe nominal return, mean one thing: risk assets stay magnetic.

What’s fueling this resilience isn’t animal spirits—it’s reflexivity. Positioning itself becomes energy. Every underweight portfolio is a spring coiled in anxiety. The moment the market refuses to break, those same worriers turn buyers. Think back to 2020: the COVID crash birthed the fastest rally in modern memory. Shorts covered, gamma flipped, passive flows surged, and the under-invested got run over. Reflexivity isn’t a theory—it’s gravity.

Fundamentally, the four balance sheets that matter—banks, corporates, consumers, and governments—are mismatched but alive. Consumers are bruised, corporates cautious, banks selective, and governments bloated. But it’s those bloated balance sheets—the fiscal engines running hot—that keep the world from slipping into deflation. There’s no political will for austerity, not when re-arming, re-shoring, and re-building are the new fiscal religion. The “war economy” is no longer a figure of speech; it’s policy.

That’s why gold refuses to quit. That’s why palladium looks like it wants to bolt. Precious metals are just equities in disguise—claims on tangible scarcity in an age of printed abundance. In a world where government debt expands faster than GDP, “risk assets” become the safer store of value. Paradoxical, yes, but true.

Long bonds, meanwhile, remain the casualty. The war economy weakens them by design. Central banks can’t hold QT and re-armament in the same hand for long—eventually, the Fed and Treasury will pivot to yield-curve control. However, YCC is a currency death trap; it has always been. Japan’s living that experiment in real time, managing yield while bleeding FX.

So we stay risk-on—not out of euphoria, but because there’s no clean alternative yet. The signal to de-risk simply hasn’t printed. The market isn’t drunk, it’s caffeinated: alert, twitchy, but still walking straight. Until that changes—until liquidity tightens or credit wobbles—every dip is still a liquidity hunt, every wobble a buying opportunity.

Prices move first. Narratives catch up later. For now, the tape still hums the same tune: the party’s not over, the lights are still bright, and the exits remain empty.