If you read last week's blog, you might recall that Nate had a "Slightly Bullish" outlook for the market this week, with a secondary forecast for "Higher Volatility" given the potential macro and geopolitical catalysts on the calendar. Overall, that forecast proved reasonably accurate. Stocks largely extended their advance and continued to grind higher, although trading was not without periods of volatility. Treasury yields remained elevated, particularly on the long end of the curve, and investors continued to monitor developments in the Middle East. Despite these concerns, equity markets demonstrated resilience as strong technical trends, supportive sentiment, and continued risk appetite helped offset the headwinds. Volatility remained relatively subdued, with the VIX falling to an eight-month low during the week, suggesting investors have grown increasingly comfortable with both the macro backdrop and geopolitical risks. Looking back, the market largely followed the "melt-up" script Nate highlighted last week, with stocks continuing to push higher despite several reasons for caution.

At the time of this writing (12:40 PM ET)

I will provide an overall “modestly cautious” forecast for stocks next week, since the end of summer tends to be seasonally week time for markets, on top of continued uncertainty amid the Iran conflict, all while bond yields appear to be resuming their selloff. What could challenge my forecast? While there are certainty risks, many of these risks have been in place all year, and amid a strong backdrop of earnings growth across the entire US stock market, strong economic data, it wouldn’t surprise me if the market continued to look through the risks.

• Monday 8/24: Chicago Fed National Activity Index
• Tuesday 8/25: ADP Weekly Employment Change, Philadelphia Fed Non-Manufacturing Activity, Richmond Fed Manufacturing Index, New Home Sales, and Consumer Confidence
• Wednesday 8/26: MBA Mortgage Applications, Personal Income & Spending, PCE and Core PCE, Durable Goods, 2Q26 GDP (second reading), Personal Consumption, Capital Goods Orders
• Thursday 8/27:.Trade Balance, Retail Inventories, Initial Jobless Claims, Kansas City Fed Manufacturing Activity
• Friday 8/28: Chicago PMI, University of Michigan Consumer Sentiment, Preliminary Benchmark Payrolls Revision

• Monday (8/24): None
• Tuesday (8/25): Dicks Sporting Goods (DKS), Zoom Communications (ZM), Intuit (INTU)
• Wednesday (8/26): NVIDIA (NVDA), Okta (OKTA), Crowdstrike Holdings (CRWD), Synopsys (SNPS), Veeva Systems (VEEV), Salesforce (CRM), HP Inc (HP), Standard Nuclear (STDN)
• Thursday (8/27): Dollar General (DG), Dollar Tree (DLTR), AutoDesk (ADSK), Workday (WDAY), Marvell Technology (MRVL), Affirm Holdings (AFRM)
• Friday (8/28): Hyperliquid Strategies Inc (PURR), Hub Group (HUBG)

There was a mixed bag of economic data this week, headlined by a hawkish tilt in the July FOMC minutes, which showed a 9-3 vote to hold rates steady with "many" officials flagging that a hike could still be needed if inflation doesn't ease. The labor market continued to hold up, with initial jobless claims coming in slightly better than expected at 206K. The bigger surprise came from manufacturing, as the Philadelphia Fed's index blew past expectations to hit its highest level since April 2021, a reading corroborated by strong S&P Global PMI data showing services activity expanding at its fastest pace since 2022. Here's a breakdown of the reports:

• FOMC Minutes (Wednesday, July 28-29 meeting): Revealed a 9-3 vote to hold rates at 3.50%-3.75%, with "many" participants indicating a rate hike might still be necessary if inflation fails to ease.
• Initial Jobless Claims (Thursday): Came in at 206K, slightly below the 210K consensus and down from the prior week's 212K, reinforcing that the labor market remains resilient for now.
• Philadelphia Fed Manufacturing Index (Thursday, August reading): Surged to 47.4 from 41.4 in July — the highest level since April 2021 — crushing expectations of a decline to roughly 25. Nearly 57% of firms reported increased activity vs. only 10% reporting declines.
• S&P Global US PMIs: Both the Manufacturing and Services PMI came registered in expansion again this month, with services activity expanding at the fastest pace since 2022.

Longer-term U.S. Treasury yields pushed higher this week, which resulted in some steepening of the curve, before finding some support as the Treasury announced buybacks of longer-dated maturities. Collin Martin, Head of Fixed Income Research and Strategy at the Schwab Center for Financial Research, is skeptical that the buyback program will provide lasting relief. His core view is that buybacks won't solve the deep-rooted issues — including U.S. government debt — that are pushing yields higher. He argues that over the longer term, the Fed and Treasury will need to address their policy challenges head-on, or risk losing credibility.

Market expectations around a potential rate hike from the Federal Reserve imply a 40% chance of a rate hike at the September FOMC meeting, though not much has changed on the broader futures curve over the past week. Fed watchers will be paying attention to news out of the Fed's annual Jackson Hole symposium.

Momentum continues to take a breather, with the Morgan Stanley US Momentum Index trading lower throughout the week. The selloff in government bonds has been impacting the momentum trade, potentially due to the large number of AI-related companies that have been trading in the momentum basket. As they have begun to look to debt financing for more of their capex, the increase in borrowing costs may be impacting their market valuations.

The Bitwise 10 Large Crypto Index is up 25% since last Friday, with bitcoin up 23% and ether up 28% at the time of writing. Earlier in the week the CFTC announced Reg Crypto, while the Treasury announced intentions to buy back long-dated bonds, sparking a short squeeze in bitcoin.

As of a week ago, the weighted average of shorts was near $72k, while that of longs was near $62k. At $65,000, a 10% move higher would have put $10B in short open interest at risk of liquidation, while a 10% move lower would have put about $7B in longs at risk of liquidation. It's important to note that these are estimates and past short squeezes have typically liquidated less than these estimated amounts, while long flushes have often liquidated more. Wednesday and Thursday saw over $2 billion in levered shorts liquidated, with more liquidations occurring today.

The squeeze continued overnight, with bitcoin nearly reaching $80,000 this morning. While short squeezes are typically short-lived, and the rally may need to digest some of these fast gains, it may have ended the debate as to whether the low of the bear market was in. Since reaching $60,000 in early February, bitcoin has held that level over the past six months. Now ten months from the October 2025 peak, the bears may be capitulating following this squeeze. Bitcoin is now above the active investor cost basis ($76,000), a measure of the average cost paid by investors who acquired bitcoin in secondary markets. The ETF cost basis still sits near $83,000. A sustained hold above these levels would indicate that the average bitcoin investor is now at a profit, which has historically been a signal that more levered exposure to bitcoin, such as Digital Asset Treasury companies, may become more attractive relative to spot. An updated measure of short clusters suggests there is less risk of liquidations around these price levels following the short squeeze.

Prior to this week's action, bitcoin's futures curve had begun to draw attention in recent weeks from market participants. Looking at the positioning of large speculators, they are currently net long bitcoin futures contracts. That has led some market participants to posit that institutional investors have turned tactically bullish on bitcoin, since traditionally they are net short futures. This thesis appears to be incorrect.

The futures curve is currently in backwardation. This is a relatively rare occurrence, occurring less than 25% of the time since futures launched on the CME. Bitcoin futures tend to be in contango most of the time. Following the release of institutional investors' 13F filings, there were some noteworthy investors who took positions in cryptocurrencies; however, broadly, most hedge funds are unlikely to be taking a directional bet. They are simply repositioning the basis trade based on the current futures curve. Even if they were taking a bullish bet, historically owning spot when the futures curve is in backwardation has not been a good strategy compared to a buy-and-hold strategy across all periods, though past performance is no guarantee of future results.

This is not meant to be a recommendation for a buy-and-hold strategy, but rather to help illustrate what investors are actually doing during periods of backwardation. Institutional investors have consistently used futures to conduct cash-and-carry trades (the basis trade). The launch of spot bitcoin exchange-traded products resulted in more investors entering the space, reducing the annualized yields earned on this trade. Today's net long demand by large speculators for futures may reflect a repositioning of the basis trade based on the relative lack of demand in spot markets. Typically, investors short futures — which historically have traded at a premium to spot when the curve is in contango — while holding an instrument that provides spot exposure. In other periods of low demand, which have often coincided with bear markets, investors take long positions in futures and short spot. This cash-and-carry strategy, which provides market-neutral exposure, has consistently been profitable, though past performance is no guarantee of future results.

Exploring some other futures-based strategies, a systematic calendar spread approach did not yield strong results, but there are some caveats with this analysis. Deferred futures pairs did exhibit attractive Sharpe ratios, likely a result of low liquidity and stale prices. Near-term contracts resulted in negative Sharpe ratios after accounting for transaction costs. This does not mean that this strategy cannot be used profitably — just that a systematic approach did not yield consistently profitable results. Fundamental analysis could be used to identify potential mispricing in the liquid calendar spreads, which could result in higher Sharpe ratios.

Finally, looking at forward bitcoin performance based on futures curve regimes shows that the best performance occurs when the market is in contango, which is the case the majority of the time. What is the investment takeaway? Hedge funds are not "bullish" on bitcoin here, but as the curve shifts to contango, that could result in buying pressure in spot markets. Given the backwardated curve, investors using cash-and-carry strategies are currently long futures and short spot. As those positions are closed out, buying will occur in the spot market, which could put pressure on short futures positions.

The Bloomberg chart below shows the current performance of the S&P 500 Equal-Weighted Index relative to the performance of the S&P 500 Market-Cap-Weighted Index. Since May, the equal-weighted index has been outperforming the cap-weighted index, indicating that market breadth has been strong over this period.