Despite underwhelming inflation data and a still-vague China trade deal, equity markets—led by a tech-fueled Nasdaq and now followed by the S&P 500—have muscled their way to all-time highs. The S&P futures are brushing 6,160, a staggering rally from 4,800 just three months ago. In normal cycles, that would raise eyebrows. In today’s regime, it raises portfolios. “Stock markets this week have been on a frenzy,” noted Elior Manier, Market Analyst at OANDA, capturing the sentiment.
The exuberance is layered: cooling global tensions, dip-buyer dominance, a “Golden Cross” technical setup, and investor apathy toward weak economic prints have created the kind of bullish cocktail that even Fed doves might envy.
Why Bad News Isn’t Sinking This Market
Let’s start with the elephant in the trading room—Core PCE. The Fed’s preferred inflation metric came in soft. Normally, this would ignite rate cut hopes. But this time, it didn’t even stir volatility.
“Even the release of PCE data hasn’t sparked major volatility,” Manier observed. That’s not a small comment—it’s a flag of investor desensitization to once-critical data.
This is what I call “signal saturation.” When investors are bombarded with mixed narratives long enough, they stop responding to macro cues and chase whatever’s outperforming. Right now, that’s AI, large-cap tech, and risk assets. This psychological shift is part of a broader structural theme: a market increasingly governed by flows, not fundamentals.
Catalysts Driving the Rally
| Catalyst | Market Response | My Analysis |
| De-escalation in Middle East | Risk-on returns | Relief rally with deep-pocketed institutions rotating back in |
| US-China “Progress” | Hope fuels highs | Front-running an incomplete deal is always a risk |
| Muted Trump Reactions | Political fatigue | The market has emotionally priced in Trump’s unpredictability |
| Golden Cross | Bullish technical setup | Algorithmic buying is triggered; CTAs are active |
| Weak Core PCE | Ignored | Signals that liquidity > fundamentals in short run |
“One of the key emerging themes is the market’s increasingly muted reaction to Trump-related developments,” Manier notes, highlighting how geopolitical digestion is now complete in the market’s gut.
What’s Actually Driving the Rally: A Deeper Look at the Catalysts
I have purposely created this table as a market note, it’s tempting to treat it as a checklist of headlines. But in reality, each of these catalysts is a node in a much larger behavioural and structural map of market mechanics. Let’s break them down and unpack the forces at play.
- De-escalation in the Middle East → Risk-On Rotation
The ceasefire between Israel and Iran didn’t just bring geopolitical relief—it unlocked capital. Institutional money, particularly from sovereign funds and global macro hedge funds, had been sitting cautiously on the sidelines amid heightened volatility. The moment the conflict faded from headlines, a wave of reallocations began—particularly back into cyclical equities and high-beta tech.
Translation for investors:
This is not just about peace—it’s about liquidity re-entering risky assets. When the world stops burning, the market starts buying.
- US-China “Progress” → Rally on Rumors
The market’s euphoric response to Trump’s vague comments about a “deal with China” is not unprecedented, but it is dangerous. What we’re seeing is classic front-running behaviour: investors pricing in the idea of a deal without any confirmation of content, enforcement mechanisms, or long-term structure.
My take:
This kind of optimism fuels rallies—but also sets the stage for violent reversals. If the actual deal disappoints, the pullback could be sharp and fast. Traders win here. Long-only investors need to stay hedged.
Muted Trump Reactions → Political Fatigue
Here’s the behavioural finance angle: after years of whiplash-inducing Trump headlines, markets have become emotionally immune to his unpredictability. There’s a kind of political “numbness” in financial circles now—one that results in shrinking market sensitivity to statements that used to cause 500-point swings.
As OANDA’s Elior Manier notes, “One of the key emerging themes is the market’s increasingly muted reaction to Trump-related developments.”
Why it matters: This isn’t apathy—it’s pricing in chaos. And while it offers short-term calm, it also raises the risk of complacency. The danger isn’t in what Trump says next—it’s in investors assuming it won’t matter until it suddenly does.
Golden Cross → Bullish Technical Trigger for Algo Funds
The Golden Cross refers to a technical chart pattern where the 50-day moving average (short-term trend) crosses above the 200-day moving average (long-term trend). In simple terms, it signals that the recent price momentum has turned structurally bullish.
But here’s where it gets critical for investors: This isn’t just a symbolic pattern anymore—it’s a signal that activates a new wave of buyers.
Algorithmic trading systems and CTAs (Commodity Trading Advisors) are programmed to respond to technical setups like the Golden Cross. Once this pattern triggers, automated strategies start pouring into equities, further fueling the rally—regardless of fundamentals.
Implication for individual investors: Even if you’re not a chart-watcher, the machines are. And when they activate, markets move faster than traditional news-driven logic. The Golden Cross is no longer just a historical footnote—it’s a modern market ignition switch.
- Weak Core PCE → Ignored by a Liquidity-Hungry Market
The Core Personal Consumption Expenditures (PCE) index came in weaker than expected—normally, this would trigger reactions about rate cuts or slowing demand. But instead, markets barely blinked.
Why?
Because we are in a liquidity-driven regime—where the abundance of capital outweighs concern for fundamentals.
Manier captured it well when he said, “Even the release of PCE data hasn’t sparked major volatility.”
Logical interpretation is that investors no longer fear weak macro prints unless they threaten liquidity. It’s not about whether growth is slow; it’s about whether the Fed might withdraw the punch bowl. And as long as that risk is low, the party continues.
These Catalysts Speak to Structure, Not Sentiment
The common thread running through all these events is not investor confidence in fundamentals—but a recalibration of how the market processes risk.
- De-escalation means unlocked capital.
- Rumored deals mean pre-emptive buying.
- Trump fatigue means stable volatility.
- Golden Cross means algorithms are piling in.
- Weak data means rate cuts stay on the table, not fear.
This isn’t irrational—it’s strategic. But it’s also fragile. Because when markets run on momentum and machines, they can turn just as fast as they climb.
S&P 500 Index vs Core PCE YoY
Below is a graph showing the S&P 500 index vs. Core PCE YoY over the past 6 months. As in evident that the S&P 500 Index rising steadily over the past 6 months while Core PCE YoY remains largely flat. This visual reinforces my central argument: equity markets are charging ahead despite muted inflation data, a classic sign of a sentiment-driven rally.
This divergence between rising equity prices and flat inflation shows a disconnect—but not necessarily a danger, unless inflation flares up again. It’s a liquidity-driven rally, one that’s more about capital flows and sentiment than economic vigor.
Short-Term Strategy: What Should Investors Do Now?
“Dip buyers have had the hand in the past five years,” says Manier.
That statement is more than historical—it’s predictive. The rally from 4,800 to 6,160 hasn’t just been tech-driven; it’s been a testament to behavioral finance. Investors, especially institutions, are now conditioned to “buy the ceasefire,” “buy the disappointment,” and front-run optimism.
This is the season of momentum with selective caution.
Near-Term Tactical Moves:
- Tech Momentum (Bullish):
Stick with what’s working. AI, semiconductors, and cloud computing still command capital. Nasdaq’s leadership remains intact, and rotational weakness hasn’t yet set in. - Commodities (Cautious):
Oil prices may languish as geopolitical risk premia evaporate. Natural gas also faces headwinds unless supply disruptions reemerge. - Financials (Neutral):
Banks are moving sideways. Without a major policy pivot or a yield curve steepener, it’s hard to make a compelling bull case. - Long-Duration Bonds (Hedge):
Treasuries could shine again if growth slows, especially post-July earnings. This is your low-drama insurance.
Risks to Watch: When Will Bulls Blink?
“Bulls will likely need stronger economic data to justify pushing risk assets to further highs,” warns Manier.
Indeed, this rally has been relief-led, not revenue-led. The gap between expectations and earnings—or between dovish hopes and inflation realities—could catch markets off guard.
Top 3 Red Flags:
- Sticky Inflation in Q3:
If Core PCE or CPI rebound, expect bond yields to spike and equities to stall—or worse. - US-China Deal Disappointment:
With Trump’s announcement light on substance, the market is trading on narrative fumes. If July 9 brings a dud, the unwind could be sharp. - Earnings Season in July:
Megacaps are priced for perfection. Misses from Nvidia, Apple, or Microsoft could deflate sentiment quickly.
Medium to Long-Term Outlook: Position for Both Momentum and Safety
The Golden Cross forming on the S&P 500’s daily chart (50DMA crossing above the 200DMA) is textbook bullish. But history tells us this signal works best when supported by earnings and macro clarity—not in a fog of optimism.
For the prudent investor, this means:
Strategic Hedge Ideas:
- Inverse ETFs (Tactically):
Don’t short blindly—but use tools like SH or SQQQ to balance overexposure. - Volatility Index Calls (VIX):
VIX is cheap. Think of it as fire insurance in a dry forest. - Gold/Bitcoin Mix:
A hedge against both fiat fears and systemic shocks. Ahead of the 2026 U.S. elections, this barbell becomes more strategic than speculative.
Prediction: For Those Who Dare and Those Who Fear
This market is not delusional—it’s disenchanted with bad news. It’s running not because of fundamentals, but because there’s no incentive to stand still.
And yet, as any seasoned investor knows: late-cycle markets are seductively dangerous. The current rally is more evolution than euphoria, more algorithm than analysis.
For the bold:
If the market breaks 6,200 on strong tech earnings and another geopolitical calm, it could surge to 6,500 by September. Stay long momentum, but keep a hand near the exit. The first whiff of Fed hawkishness could be the trigger.
For the cautious:
Q3 will not be a smooth ride. Hedge now. Reallocate to low-volatility ETFs, long bonds, and real assets. Volatility will return before the U.S. primaries heat up—and those not hedged will pay for this summer’s calm.
