The S&P 500 index, which groups the top 500 companies in the United States, hit a record high on June 1st, but has been on a downward trend since then. Is this a normal market correction or the beginning of a larger bearish move?
According to a vision independently presented this fall by analyst Damir Tokic and Mott Capital, will respond to a combination of external macroeconomic pressures and tensions within Wall Street’s internal structure.. They say the current environment shows that investor optimism in volatile assets has dried up.
To put the situation into context, recall that the conflict in the Middle East has led to the closure of the Strait of Hormuz, one of the most important sea lanes on earth, through which almost 20% of the world’s oil circulates. This situation threatens to reduce global oil reserves to operational critical levels during June.
As a direct result of this imbalance, oil prices, currently $89, reached $114 per barrel on May 4, a level not seen since 2022.
But markets are still hopeful that a deal can be reached to reopen the Strait of Hormuz before global stocks reach critical levels.
In this sense, researcher and financial advisor Damir Tokic warned on June 9th: If roads remain closed or highly restricted, “energy costs will go up significantly.”.
“We are facing an inflation crisis and the Fed will be forced to take a more restrictive stance, which will be the first trigger for a stock market crash,” the analyst said.
This pressure is already becoming reality. The U.S. Bureau of Labor Statistics reported this week: Consumer price index (CPI) in May rose to 4.2% compared to the same month last yearAs reported by CriptoNoticias, it was the highest since April 2023, compared to 3.8% in April.
Technological slowdown will burst the bubble
For this macroeconomic panorama, Tokic Added possibility of bubble burst in technology sector. “There had to be a unique event that triggered that, and that event potentially was the Broadcom report.”
Broadcom is one of the world’s leading semiconductor and technology infrastructure companies, and its stock price and financial performance serve as an important thermometer of the health and investment levels of the technology and artificial intelligence (AI) industries.
The company’s latest earnings report reveals: Artificial intelligence (AI) capital investment growth reaches cyclical peak. “This signals to the market that AI capex growth has peaked,” Tokic said.
“Current valuations of semiconductor companies, as measured by the VanEck Semiconductor Exchange Traded Fund, are based on unreasonable growth expectations. A slowdown in technology infrastructure spending will cause a contraction in multiples and reduce the capital value of these companies,” he explains.
Tokic predicts that annual investment in AI will increase to $1 trillion by 2027. However, it states that growth will be “significantly slower than in 2026 and will continue to slow in 2028 and beyond.”
Valuations are based on growth rates, and slowing growth “means a contraction in multiples, which alone could cause a bubble to burst. But an inflation crisis and rising interest rates could reduce investment in AI by 2027, which could be the real trigger for a collapse,” the analyst says.
Numerical imbalance will bring down Wall Street
Analysis and investment firm Mott Capital has identified the following from a technical perspective: The main risk lies in the “microstructure of the stock market”. Current data reflects the historical disconnect between individual stock performance and the broader index.
Analysts at Mott Capital say individual stocks are trading at extreme levels of implied volatility, with the VIXEQ index (which measures risk and shock expectations, but at the individual company level) at around 45 points. In contrast, the S&P VIX index, which measures overall stock market volatility, remains low at nearly 17.6 points.
This 27.5 point difference represents the largest difference ever recorded in financial records. “This difference, or divergence, between volatility at the component level and the index level is one of the key reasons why the dispersion of the S&P 500 remains at historically high levels, as seen during the COVID-19 crash and the tariff crisis,” the firm explains.
Mott Capital also notes that the three-month implied correlation is at an all-time low of 10 points. Such low numbers were only observed in July 2024, just before the global collapse of foreign exchange arbitrage with the Japanese yen.
The mathematical risk increases if S&P 500 e-mini futures break through technical support between 7,350 and 7,400 points. Analysts at Mott Capital elaborate that this “bottom layer” of protection is missing. Automatically activates the large-scale sales algorithm of systematic investment funds Execute programmed orders based on raw materials and protect capital from market declines.
Similarly, the market is moving towards the following regime: gamma Negative, i.e. Option brokers forced to sell stocks to cover their losses. The graph shows net exposure. gamma For the S&P 500 (SPX), different strike prices are divided into green bars (positive gamma/call) and red bars (negative gamma/put).
The 7,410 point level marked by a dashed line represents the turning point. Above this level, the exposure is primarily positive (green bars) and helps reduce volatility. However, below 7,400 points we enter an area where negative exposures (red bars) dominate. The firm warned that this would “mechanically accelerate the decline towards the 7,300-point support zone.”
The market appears overextended from a positioning perspective and is approaching a level where selling pressure could accelerate mechanically. This kind of pressure doesn’t depend on headlines or news. It depends on your market position and structure.
Mott Capital, an analytics and investment firm;
Seasonal employment prevents collapse
In the face of these warnings of collapse, service sector worker employment data reveals significant nuances. “The 76,000 jobs created in the hospitality sector and 50,000 jobs in the local government sector can be attributed to the impact of the World Cup,” Tokic said.
Excluding these seasonal and temporal factors, the Labor Market Report is structurally weak. This weakness contradicts the following hypothesis. economic overheating (A phenomenon in which the economy grows rapidly due to excessive employment and consumption, causing inflation.) This shows that the real market is not out of control.
This labor vulnerability scenario reduces the Fed’s incentives. raise the price of money (i.e. raise interest rates). If real economic activity is weak, the Federal Reserve has no reason to make loans more expensive and cool the market further. On the contrary, the argument can be made that interest rates should be kept stable or even lowered to stimulate the economy.
Meanwhile, Mott Capital notes that institutional investor flows in the derivatives market indicate that semiconductor call option premiums remain high. This shows that Demand for tech stocks on traditional stock exchanges hasn’t completely collapsed.
This continued buying is helping to support the prices of Wall Street’s biggest companies. As long as market makers maintain liquidity at these support levels, the forced liquidation algorithm will not be triggered immediately.
Stock market developments in the coming weeks will depend on the interplay between geopolitical stability and technical contract support. Breaking through the quantitative limits will confirm a shift in the economic cycle towards a prolonged contraction phase.
