An Emboldened Bull, Dancing on the Edge

As US equities pop to new all-time highs, the current market dynamic is best captured by the juxtaposed image of an emboldened bull juggling live bombs (headline cover). While surface-level confidence hits new extremes, underlying risks continue to mount – ranging from momentum exhaustion, inter-market divergences to looming macro-cycle shifts. In behavioural terms, markets are climbing a [steep] “wall of worry”—pressured by a rapid fire of make-or-break event risks. The longer the bull dances on edge, the more cracks will give way beneath the surface.

This latest extended relief-rally follows previously elevated macro risks, most notably the geopolitical tensions of the so-called “12-Day War” published in our report themed “Are Markets Underpricing Geopolitical Risk Premium?” However, every metaphoric bomb risk that is perceived to be defused, often lights up again, when least expected.

Case in point, the latest Iran-Israel ceasefire remains fragile, and oil’s spike risk is still viable, based on the activation of a breakout pattern above $80 (Figure 1).