No chance of winning, no defense: Why the market has stagnated

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The US stock market has seemingly returned to historical highs, but behind this rebound, there is a lack of real optimistic momentum as well as effective risk-hedging tools. Investors are stuck in a dilemma of stagnation—not daring to be extremely bullish, nor able to safely go short.

The S&P 500 index has risen 4% so far this year, erasing the losses from the early days of the March war and reaching new historical highs. Some on Wall Street are celebrating this loudly, but Katie Martin, a markets columnist for the Financial Times, believes that such optimism remains rare in the market. When she speaks with professionals actually engaged in market analysis and investing, she hears quite a different story: fatigue, confusion, and a deep sense of uncertainty about where things are heading.

She points out in her article that what truly causes the market to stagnate is a kind of "dual failure"—investors lack an edge in judging direction, while also having lost traditional risk-hedging tools. The historical buffers such as the bond market and gold are failing, and the market is increasingly "exposed" in the face of macro risks.

From a structural perspective, this round of rebound is both narrow and fragile, and is overly reliant on tech stocks. The semiconductor sector has surged, but overall price-to-earnings ratios have fallen about 10% since the start of the year—stocks are rising on fundamentals rather than sentiment, which is actually a signal of poor market health. According to Amundi chief investment officer Vincent Mortier, it is this highly uncertain environment that makes timing nearly impossible, and clients are hesitant to both reduce holdings or make new moves.

The optimistic narrative cannot conceal the danger beneath the surface

Jefferies strategist David Zervos declared in a report this week that S&P 500 futures are "voting for MAGA", mocking the bears for suffering what he calls "Trump Derangement Syndrome." He wrote, "I know for those extremely bearish geopolitical doomsayers, seeing futures back at historic highs must be incredibly frustrating."

However, Katie Martin points out that even though the indices are persuasive on paper, the underlying scene is far less glamorous. This is because the stock market lacks upward "momentum." A recent report by Bank of America strategist Savita Subramanian shows that the driver of this stock price growth is earnings themselves, not investor optimism for the future—the ratio of stock price to earnings has fallen by about 10% since the end of last year. When the market is driven by fundamentals, it is often when sentiment is at its lowest.

The bond market’s performance corroborates this view. Relative to prewar levels, the bond market still hasn’t recovered lost ground, and inflation concerns keep fixed income investors wary.

The rebound is too narrow for tech stocks to support alone

Another notable feature of this rebound is its high concentration. According to BNP Paribas Asset Management strategist Sophie Huynh, only 44% of the components in the S&P 500 are at relative highs over the past four weeks, with the main force pulling up the index concentrated in the tech sector.

Semiconductor stocks have been particularly outstanding: The Philadelphia Semiconductor Index has seen no negative single-day gains since April, with a monthly increase of as much as 30%. Katie Martin writes that, whether rational or not, the market has again placed a significant bet on this highly uncertain and singular theme.

Sophie Huynh states that she remains cautious about the overall market. In her view, the heavy reliance on tech stocks, combined with the failure of traditional hedging tools such as bonds and gold, leaves the market looking fragile in the face of any new shocks. "Portfolios are more exposed than before," she says. She also notes some unsettling market anomalies—for example, the Australian dollar rebounded sharply after the most severe period of the conflict, even though Australia is highly sensitive to global energy flows. This movement seems to reflect the market's deliberate neglect of bad news.

Traditional hedges have failed, investors are stuck in "buy-the-dip inertia"

In the absence of effective hedging tools, investors of all sizes are showing a highly consistent behavioral tendency: sticking to their risk exposures and rarely stopping out. This "buy the dip, don’t sell" approach has worked time and again over recent decades and remains the default for many today.

"We see this clearly in our clients," says Amundi chief investment officer Vincent Mortier. "Almost no one is actively reducing their risk exposure. They don’t dare, because they don’t want to be caught off guard by a sudden rebound. In such a volatile environment, timing is nearly impossible."

Caught between bullish and bearish, the market is stuck in a "binary dilemma"

At the end of her article, Katie Martin cites the judgment of Societe Generale analyst Kit Juckes, summarizing the current state of the market as being "paralyzed by binary possibilities." Both extreme optimism and extreme pessimism are equally untenable, and equally difficult to safely express through a portfolio.

"We’re still just watching paint dry," says Kit Juckes. "The resilience of economic data is better than expected, but this is largely a lagging effect, not a reason to be optimistic."

Katie Martin concludes: the market, much like the ships lingering in the Strait of Hormuz, may have truly fallen into a helpless deadlock.

Risk Disclosure and DisclaimerThe market carries risks, and investment should be cautious. This article does not constitute personal investment advice and does not consider the individual investment objectives, financial situation, or needs of any specific user. Users should consider whether any opinions, views, or conclusions in this article fit their particular circumstances. Investing based on this is at your own risk. ```