In 1991 Billy and Akaisha Kaderli retired at the age
of 38. Now, into their 4th decade of this
financially independent lifestyle, they invite you
to take advantage of their wisdom and experience.
Markets kicked off the second half of 2025 with a strong finish to Q2, propelled
by easing geopolitical fears, falling oil prices, and a reaffirmation of the
Fed’s dovish tone. The S&P 500 rose 3.4% in the final week of June to close at
new record highs.
Key Drivers:
Mega-cap
leadership remains dominant, with tech names up nearly 6% on the
week, fueled by continued AI optimism and strong momentum.
Retail
speculation returned in full force, as non-profitable tech, meme
stocks, and penny names all saw outsized gains—signs of rising risk
appetite.
Institutional
flows were modest, driven more by short-covering and tactical
positioning than broad conviction buying.
Breadth remains
narrow, with only about 22 stocks in the S&P 500 hitting new
all-time highs, underscoring the fragility beneath the surface.
📈
Technical Spotlight: The Golden Cross Emerges
This past week, the S&P 500’s 50-day moving average crossed above the 200-day
moving average—a classic Golden
Cross formation. While not infallible, this technical signal is
generally seen as a bullish long-term indicator. Historically, Golden Crosses
tend to precede extended rallies when supported by improving breadth and strong
macro momentum.
However, this particular instance presents a mixed picture:
The cross
occurred amid narrow leadership, driven primarily by mega-cap tech,
with cyclicals and small caps still underperforming.
Volume has not
confirmed the breakout, with much of the recent move attributed to
lower-quality speculative flows.
With that stated, the historical performance of “Golden
Crosses” tends to yield positive returns, but that does not necessarily
come without volatility in the near term.
🔮 Looking
Ahead: Strategy for a Narrow, Overbought Market
While the strong finish to Q2 has given investors reason to celebrate, the
underlying structure of the rally calls for caution. Markets are increasingly
stretched in the short term, both technically and sentiment-wise, and investor
positioning should reflect the potential for increased volatility in July and
August.
Seasonality
turns weaker in mid-to-late July, with August and September
historically being two of the most volatile months of the year.
Earnings season
begins post–July 4th, and corporate guidance—particularly from
cyclicals and retailers—will be critical in determining whether broader
market participation emerges.
Volatility
remains unusually low, increasing the probability of sharp,
sentiment-driven pullbacks in overbought sectors.
Breadth remains
narrow, with gains concentrated in mega-cap tech. This divergence
between index strength, weak money flows, and internal weakness could create
fragility if leadership falters.
🧱 Investor
Positioning Recommendations:
Trim gains in
extended positions, particularly in high-momentum tech and
speculative trades (e.g., AI, leveraged ETFs, meme stocks). Rebalance toward
more fundamentally sound holdings.
Maintain core
exposure to broad indexes or quality growth names, but avoid
chasing performance in overbought sectors. Instead, look to build or rotate
into areas showing early signs of leadership (e.g., industrials, financials,
energy).
Focus on
risk-adjusted returns, not absolute upside. With sentiment
elevated, adopting a more selective and valuation-aware approach will
provide better long-term results.
🛡️ Risk
Management Guidelines:
Raise cash
allocations modestly to take advantage of potential pullbacks in
late July or August.
Utilize
trailing stop-losses on aggressive trades, particularly in
leveraged ETFs or speculative names that have already seen sharp moves.
Avoid
overexposure to crowded trades, especially single-stock themes and
high-beta names vulnerable to profit-taking.
Monitor macro
developments, including Fed commentary, PCE inflation data, and
geopolitical headlines, as catalysts for sentiment reversal.
With the S&P 500 breaking out to new highs but doing so on narrow participation
and stretched technicals, now is the time to focus on disciplined execution,
thoughtful asset rotation, and proactive risk control. As we enter the
seasonally weaker half of the year, managing downside risk is just as crucial as
capturing upside momentum.
💥Investor Greed Returns With A Vengeance
Retail investor greed again dominates market activity, echoing some of the same
speculative behaviors seen during previous risk-on phases. Retail investors show
heightened risk appetite across multiple metrics, from options trading to
leveraged ETF flows, with little regard for valuation or macroeconomic
headwinds.
Put/call ratios are flashing strong bullish sentiment, with the SPY ratio
hovering around 0.79, reflecting an imbalance toward calls over puts.
Investor greed primarily drives this skew, particularly in names and sectors
associated with high momentum or popular narratives.
“Despite the
looming July 9th trade negotiation deadline, not much is priced into the SPX
vol surface for the event, suggesting investors either expect a positive
resolution or for the deadline to be extended. Interestingly,
the flattening in skew was mostly concentrated in the front-month,
suggesting this was mostly positioning-driven FOMO-type call buying.
Longer-dated skew remains steep in comparison.” – CBOE
The surge in call option volumes has occurred across semiconductor plays,
especially in leveraged vehicles like SOXL, the 3x bullish semiconductor ETF,
where open interest in call options far exceeds puts. Similar patterns are
emerging in thematic ETFs like RETL (3x retail) and DRN (3x real estate), which
are seeing elevated daily volume despite mixed performance. This appetite for
leverage is being pushed further with the proliferation of single-stock
leveraged ETFs, such as HIMZ, a leveraged play on HIMS, which saw a dramatic 70%
collapse after a corporate announcement, highlighting how retail speculation
often ignores risk asymmetry.
Investor greed is also evident in flows to speculative and penny stocks. Retail
inflows into U.S. equities have topped $70 billion year-to-date, with much of
that concentrated in highly volatile names like Palantir, MicroStrategy, and
other crypto-adjacent or AI-linked plays. Penny stocks and small caps,
traditionally the domain of risk-seeking traders, have also seen outsized gains
in short bursts, primarily driven by social media chatter and retail momentum
chasing. At the same time, investors are doubling down on speculative trades
even after short-term losses, reflecting a “buy-the-dip” mindset
that prioritizes quick returns over fundamental analysis.
Supporting this activity are broader ETF flow dynamics. Retail-focused providers
like Vanguard have seen their share of total U.S. ETF inflows jump to 37%, up
from 27% a year earlier. Leveraged equity ETF flows reached a five-year high
this past spring and have remained elevated through Q2. Meanwhile, tighter
bid-ask spreads and more retail-accessible platforms are enabling higher trade
volume with lower friction, further fueling this behavior.
However, it isn’t just retail investor greed driving the market. While a bit
late to the party, professional investor sentiment and positioning have surged
higher, helping the recent push of the markets to all-time highs.
While retail and professional exuberance fueled the market’s rise, it also
introduces fragility. Leveraged ETFs suffer from compounding decay in volatile
markets, and speculative trades can unwind violently, as HIMZ demonstrated.
While momentum can extend rallies, the resulting reversals are often sharp when
sentiment turns.
Optimism is working
in the Bulls’ favor, but the warning signs of overreach are mounting. It
won’t take much for a decent price correction, which could begin as soon as next
week.
Trade accordingly.
📈 Nasdaq
2025 Tracking 2020
I have noted many times previously that I hate market analogs. The reason is
that they require “cherry-picking” starting
and ending points to make the correlation. However, there are times when analogs
can help display similarities between market performance periods and investor
greed or fear. The following chart of the Nasdaq in 2020 and 2025 is a good
example of the latter. As shown, the onset of the pandemic led to a 35% decline
in March of that year. The market then bottomed and began a sharp rally into the
end of 2020, and further in 2021. As shown, in 2025, the Nasdaq is tracing out a
similar pattern with the decline in March and early April, and the subsequent
rebound through the end of June.
This is undoubtedly an encouraging analogy for the bulls, suggesting that the
market has plenty of runway left for the rest of 2025. However, this is why I
personally dislike analogs like this because it assumes that just because
something occurred in the past, it will repeat identically in the future. The
problem is that the analysis lacks the data that supported the previous rally.
The table below details some of the differences between 2020 and today. It is
also critical to remember that during 2020, sporting events from football to
horse racing were shuttered, leaving only the stock market as a viable outlet
for gamblers to place bets. Armed with a Robinhood account, a $1500 stimulus
check, and a “bad
attitude”, investors flocked into the financial markets chasing some of the
speculative corners of the market. Of course, with the Federal Reserve cutting
rates to ZERO, injecting a $120 billion a month into the financial system, and
ensuring the junk bond market functioned, it is unsurprising that markets
quickly recovered from their lows.
The fascinating thing about 2025 is that the market “feels” much
like it did in 2020, but the backdrop is entirely opposite. The Fed is
maintaining elevated interest rates, reducing its balance sheet, and fiscal
support for the country continues to reverse. Yet, even with monetary and fiscal
policy absent, the market is rallying with seemingly the same reckless abandon.
Will the 2025 analog continue to mirror 2020? Maybe. But with valuations
elevated and the economy slowing, I would bet that the analog breaks sooner than
later.
Be careful taking analogs at face value.
The views expressed by Lance Roberts are not
necessarily those of RetireEarlyLifestyle.com
Billy and Akaisha Kaderli are
recognized retirement experts and internationally published authors on
topics of finance, medical tourism and world travel. With the wealth of
information they share on their award winning website RetireEarlyLifestyle.com,
they have been helping people achieve their own retirement dreams since
1991. They wrote the popular books, The
Adventurer’s Guide to Early Retirement and Your
Retirement Dream IS Possible available on their website
bookstore or
on Amazon.com.
Retire
Early Lifestyle appeals to a different
kind of person – the person who prizes their
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want to mindlessly follow the crowd.