Monetary disorder evolved to become deeply systemic. It was on full display this week, especially Friday. The mania and the frog in the pot syndrome. Instability has been percolating (fragilities building) for so long that we’re numb to it all. In the markets, it’s more than comfortably – it has become exuberantly, manically numb.

This is an acutely precarious market backdrop. As we’ve witnessed repeatedly, fledgling “risk off” market pullbacks foreshadow abrupt market reversals, short squeezes, the unwind of bearish hedges, “buy the dip,” FOMO, liquidity overabundance, and intensifying market melt-ups. Market dynamics have dramatically favored risk-taking and speculative leveraging. For a while, disregarding risk has been systematically rewarded.

All that said, we’ve quickly returned to an environment where risk should be taken seriously. Some of the same dynamics that fueled a historic market speculative blowoff could now trigger downside market instability, illiquidity, panic, and dislocation. In recent years, I’ve increasingly drawn parallels between the current Bubble backdrop and the “Roaring Twenties.” It’s worth noting that the 1929 crash lacked a clear catalyst. The fateful final bout of blowoff excess reversed abruptly, completely blindsiding everyone.

Before delving into the markets and my thinking of why this could be a critical market juncture, I have to respect exceptionally loose financial conditions. While the VIX Index popped a notable six points Friday (and for the week) to the highest close in two months (21.51), and high yield CDS rose seven (12 on the week) to 312 bps, there is little in my universe of financial conditions indicators that suggests imminent trouble.

High yield CDS closed Friday at an only two-week high. The MOVE (bond volatility) Index gained five to a two-week high 75. While up eight bps from Tuesday’s three-month low, junk bond spreads (to Treasuries) also closed at only two-week wide levels. Investment-grade CDS rose a couple off Tuesday’s multi-month lows to a two-week high of 52.5 bps, for an indicator that spiked to 68 in late-March. Dollar swap spreads were little changed, as were bank CDS prices, which ended the week barely off four-month lows. European bank CDS ended only a few bps above 2026 lows.

The Semiconductor Index traded to all-time highs Wednesday, and closed Thursday trading up 6.1% week-to-date and 92.3% y-t-d. Similar for the Nasdaq100, with a record intraday high on Wednesday and a positive w-t-d at Thursday’s close.

Markets have been so awash in liquidity, powered by a manic “risk on” and surely enormous speculative leveraging. The amount of derivative-related leverage associated with the historic “big tech” melt-up must be enormous. It’s worth noting that Money Market Fund Assets (MMFA) surged another $109 billion last week to a record $7.894 TN. This boosted y-o-y MMFA growth to a blistering $878 billion, or 12.5%. We can assume that securities finance – the “repo” market in particular – has been booming of late.

This period is certainly reminiscent of Q1 2000. The Nasdaq100 surged 35% in seven weeks for a record close on March 27th, 2000 – a rally fueled by a final short squeeze and derivative-related melt-up into Q1 options expiration. We’re now two weeks away from a huge quarterly options expiration. At Monday’s close, the Goldman Sachs short index had rallied 43% from March 31st lows. From May 19th lows to Monday’s highs (10 sessions), the Goldman short index surged 20%. When analyzing the potential for a major top, many boxes can be checked, including a massive short squeeze, derivatives-related melt-up, and manic trading.

At this point, complacency is deeply embedded in the pricing of most financial conditions indicators. With SpaceX, Anthropic and OpenAI poised to be the IPO Trifecta for the Ages, only the crazies would think it possible that the market might buckle before Wall Street books its huge paydays. In short, in the current manic backdrop, I’m not leaning on the financial indicators as an early warning mechanism. But if big tech doesn’t muster a quick rally, I would expect the indicators to begin a major adjustment.

Friday was bloody. The Semiconductor (SOX) Index was hammered 10.3%. Micron was slammed 13.3%, ARM Holdings 12.8%, Intel 11.3%, Qualcomm 11.0%, AMD 10.9%, Applied Materials 9.7%, and Nvidia 6.2%. The Nasdaq100 dropped 4.8%, with the S&P500 down 2.6%. Selling was broad-based. The small cap Russell 2000 slumped 3.5%. In line with the financial conditions indicators, financial stocks generally outperformed (NYSE Financial Index down only 0.2%).

The RPAR Risk Parity ETF dropped 2.1% Friday. That was the fund’s largest one-day decline since March 20th, a session where stocks and Treasuries were under war-related selling pressure. Not many places to hide this Friday, another one of those sessions that reinforced that Treasuries can no longer be counted on as a reliable hedge against stocks and risk assets. Ten-year Treasury yields jumped six bps Friday to 4.53%, following much stronger-than-expected May Non-Farm Payrolls.

Overheating risk was readily apparent in the week’s data.

May’s 172k gain in Non-farm Payrolls was double estimates (88k). Moreover, April’s gain was revised up to 179k from 115k. According to Bloomberg, “the figures marked the strongest three-month advance in more than two years.” Leisure and hospitality added 70k, and government jobs gained 52k.

ADP highlighted May employment gains of 122k, the strongest reading since January 2025. “Hiring was more broad-based in May than we’ve seen in the last few years. The labor market continues to show sustained momentum going into the summer hiring season.” ADP chief economist Nela Richardson.

April job openings (JOLTS) were reported at a near two-year high 7.618 million, up more than 700k from March and a similar amount above estimates.

The highly relevant ISM Services Index added about a point to a solid (three-month high) 54.5. Prices Paid was up slightly to an elevated 71.3 – the high since August 2022. New Orders surged almost four points to 57.3. Business Activity gained about two to a strong 57.7. Employment was down slightly to 47.9.

The May ISM Manufacturing Index rose to a stronger-than-expected 54 – a three-year high and up from December’s 47.9 reading. Prices Paid remains at a highly elevated 82. New Orders increased more than two points to 56.8, just below January’s three-year high (57.1). Employment gained more than two points to 48.6

April Construction Spending, Factory Orders and Vehicle Sales were reported ahead of estimates. “US Consumer Borrowing Posts Biggest Back-to-Back Gain Since 2022.” April’s stronger-than-expected $20.7 billion jump in Consumer Credit followed March’s more than two-year high $22.2 billion. Over the past two months, consumer borrowing has been about equally split between revolving and non-revolving.

After Friday’s strong jobs number, the rates market priced a full 25 bps Fed hike this year. The 3.88% rate forecast for the Fed’s December 9th meeting is up a full 85 bps since the start of the war. Out a year to June 2027, the market is pricing a 4.05% policy rate – 115 bps higher than anticipated before the war.

Oddly, the five-year Treasury inflation “breakeven rate” declined six bps this week to a three-month low of 2.48%. Still, markets are increasingly accepting that inflation is a serious issue that will force the Fed’s hand. There is also understandable concern for the ongoing massive supply of debt securities, including Treasuries and AI-related bonds. This flood of supply turns problematic in a deleveraging scenario.

Various markets are adjusting to an environment of persistently higher global policy rates and bond yields.

Bitcoin below $60,000. Down a brutal $13,900, or 18.9%, this week, bitcoin has now lost half its value since October highs (down 32% y-t-d). Ethereum sank 25% this week, XRP 20%, and Solana 26%. Losses are mounting, deleveraging is in full swing, and a crisis of confidence in the asset class is unfolding.

Elsewhere, the iShares Emerging Markets ETF (EEM) sank 6.52% Friday, the largest daily loss since March 18, 2020 (near peak pandemic panic). It was the equities and currencies double-whammy. South Korea’s KOSPI index sank 5.5% Friday, and Indonesia’s Jakarta Composite dropped 4.2%. For the week, major equities indices were down 8.7% in Indonesia, 7.3% in Peru, 4.8% in Chile, 3.7% in South Korea, 3.6% in Mexico, and 2.7% in Brazil.

Friday currency losses included Brazil’s real 2.0%, Chile’s peso 1.9%, Peru’s peso 1.8%, and South Korea’s won 1.8%. For the week, the Russian ruble dropped 3.6%, the South Korean won 3.6%, the Chilean peso 2.6%, the Brazilian real 2.6%, the Argentine peso 2.2%, the South African rand 2.0%, the Malaysian ringgit 1.6%, the Peruvian sol 1.6%, and the Hungarian forint 1.6%.

South Korean won losses pushed it to the low versus the dollar back to March 2009. Despite the moonshot of the KOSPI index, the won has depreciated 7.68% versus the dollar so far in 2026. The Indonesian rupiah has declined 7.38% y-t-d, the Indian rupee 5.34%, the Philippine peso 4.32%, and the Thai baht 3.43%.

Brazilian local currency bond yields surged 29 bps Friday to a one-year high of 14.84%, with yields up 24 bps in Peru (6.23%), 18 bps in South Africa (8.86%), and nine bps in Mexico (9.17%).

Metals markets were also under intense liquidation. Gold was down 3.3% in Friday trading, with Silver hit 8.2% and Platinum down 6.2%. For the week, Gold lost 4.7%, Silver 9.9%, and Platinum 7.4%, with the NYSE Gold Bugs equities Index (HUI) losing 11.7%.

It was an abrupt reality check for an exuberant retail investor community. But a day like Friday has my attention again focused on the global leveraged speculating community. It doesn’t take long for significant losses across asset classes (i.e., crypto, semis and tech, EM, metals, and Treasuries/sovereign debt) to force deleveraging. Friday trading had the look of the start of something important.

Beyond overheating, inflation and rate hike worries, I’ll touch on a few issues that could also weigh on market sentiment. Probabilities for an Iran war stalemate scenario have risen. With President Trump clearly averse to resuming full military operations, the Iranians could be emboldened to dig in and wait this out. They demonstrated this week that they are ready and willing to respond aggressively to hostilities. They maintain the capacity to keep the Strait of Hormuz effectively closed.

Timely resolution to the Strait of Hormuz and the buried nuclear material issues appears unlikely. This could drag on for months, at the cost of elevated energy prices, myriad supply chain issues, and accelerating global inflation.

June 5 – Wall Street Journal (Brian Schwartz): “President Trump said he wants Bill Pulte, his incoming acting director of national intelligence, to begin firing a large number of employees as part of a shake-up of the U.S. intelligence community… Trump said he has privately told Pulte that he believes the Office of the Director of National Intelligence, or ODNI, which oversees 18 federal intelligence agencies and units, was ‘unnecessary and/or too big.’ ‘I’d like to see it smaller. I think there are a lot of people in there that shouldn’t be there,’ Trump said, pointing to holdovers from the Biden and Obama administrations. Asked whether he is calling on Pulte to fire people, Trump said he wants him to ‘start the process’… Trump stunned many of his own advisers when he said earlier this week that he was appointing Pulte, the director of the Federal Housing Finance Agency, as his intelligence chief. The move was met with skepticism from some Republicans on Capitol Hill, who raised concerns about Pulte’s lack of national-security experience.”

“Pressed on Pulte’s role, Trump Says the Quiet Part Loud, Emphasizes ‘Rigged Elections.’”

To have Bill Pulte as one of our nation’s top intelligence officials is reminiscent of Trump’s nomination of Matt Gaetz as his pick for Attorney General. The President appears increasingly defiant, unpredictable, and unhinged. Expectations had been for Trump to be relatively “well-behaved” through the midterms. But his demeanor is shifting. He appears trapped in his war, has suffered various legislative and judicial losses, and has seen his immense power wane on multiple fronts. He’s wounded, of questionable health, and erratic. It is not a backdrop that inspires market confidence in the “Trump put.”

Markets need a relatively swift resolution to the war, or at least the opening of the Strait of Hormuz. Absent that, de-risking/deleveraging has a clear opening.

Original Post 6 June 2026

Categories: Doug Noland, Perspectives