US investor risk seeking appetite was clearly not dented by July’s market price swings. The sector/factor wars under the surface have rapidly left front page news after Situational Awareness and we are back to the “bullish” goldilocks market backdrop.

Here we return to all-time highs as the most recent bout of “market volatility” inflicted damage only on those exposed to segments of the market while the broader stock market indices cruised by unscathed.

Levered players are typically the first to suffer in a major unwind. Recent price action has felt like broad de grossing, underscored by news that a $40 billion San Francisco based, long biased AI hedge fund sold its portfolio at a discount to Citadel.

For those drawing AI and dot com parallels, consider August 17, 1998, when Long Term Capital Management suffered catastrophic losses from Russia’s default and required a $3.6 billion bailout against roughly $1 trillion of gross exposure. In the aftermath, markets reset and the Nasdaq surged, finishing 1998 up 40 percent and 1999 up 85 percent.

Strange and relatively illogical performance patterns are appearing in the market due to sentiment and technical driven price action.

Earnings season has thus far witnessed the average relative return (vs. the S&P 500) for companies missing on EPS rising by 1.15% the day after reporting while the average relative performance following a beat is -0.41%.

The wide spreads between winning and losing areas of the market was encapsulated in the Equity Long/Short hedge fund stylistic leaderboard where managers targeting growth and AI opportunities far outperformed those focused on old economy value non AI situations.

Macro managers started the quarter capturing market normalizations in April but returns dissipated for some due to a shrinking DM FX and FI opportunity set while leaders for the quarter harnessed returns from EM macro and targeted AI exposures.

We are observing some eye-popping YTD figures from Asian Equity Long/Short exposures. In fact we congratulated one China AI EQ L/S PM a few weeks ago for making 50% YTD returns and they said it was bittersweet because leading peers are up twice that much, if not more.

Over-sized return generation from Asia is not just a function of speculative over-risked AI theme chasing, it stems from the hardwired approach of Asian investors to identifying tech product cycles and opportunity sets across vertical supply chains.

Alphabet’s $85b equity raise came as a bit of a shock given hyperscalers have traditionally been far more inclined to buyback stock rather than sell more.

The developments raise another yellow flag of concern over the general state of the markets, which seems to be moving onto an even more speculative phase of this bull market.

How far the speculation goes from here remains an outstanding debate among investors, but one thing is certain; they don’t necessarily ring a bell at the top, but they sure sell a lot of stock.

Raging inflation, a new fed chair, a goal seeking US presidential administration, what could go wrong?

Here we are in the mid-year malaise where spring’s budding market trends start to consolidate and fresh narratives take hold.

Here we are again. We just experienced the spring, Trump-action induced market swoon followed by a swift, nearly miraculous re-risking in its wake.

Looking ahead, based upon previous Trump presidential years, we have a smooth upward trend over the summer with a bit of turbulence in the fall that will ultimately be resolved in a year-end rally.