MW Why 6,500 can be a launching pad for the S&P 500, according to this trader

By Jamie Chisholm

In thin summer markets, round numbers become magnets, says a popular newsletter author

Underweight positioning could fuel an extension of the stock-market rally.

The S&P 500 sits a fraction shy of its record close. Inevitably the altitude makes some twitchy, pointing to perhaps 6,500 where the air may be too thin to sustain bullish life forms.

But for Lord Fed, the pseudonym for the investor and author of Lord Fed's Gazette, Substack's 13th most popular finance blog, that level represents not a summit, but a launchpad.

"Here's what people keep getting wrong about tops: they're expecting some orderly rotation, some gentle rolling over," Lord Fed writes in his blog from the weekend.

"That's not how this works. Genuine tops are chaos. They're euphoric, messy, and loud. Positioning is maxed out, vol [volatility] is normally starting to climb, correlations are spiking to 1, and retail are frantically buying index funds at the highs," he adds.

None of this is apparent now, he reckons. Instead, the market is climbing a wall of worry, brick by brick, while the so-called smart money is underweight and waiting for a meaningful pullback that doesn't come. "That's not topping behavior, it's fuel," he says.

He details a number of the factors that do not speak of a euphoric top.

Hedge fund net leverage, for example, is currently at its 3-year median, and therefore not extended. Lord Fed notes that according to Goldman Sachs, hedge fund clients last week sold indices and exchange traded funds at the fastest pace in four months. "That's not all-in like people would expect, that's them still hedging into highs like they're expecting the puke any day now," he says.

Commodity trading advisors' long positions are elevated but not maxed out, he adds. "There's still billions in dry powder waiting if momentum keeps working."

And volatility control funds - funds that adjust their positions depending on how higher or low volatility is - are still "are still mechanically adding exposure because realized vol just keeps bleeding lower," while even the activity of retail investors points to what Lord Fed sees as steady buying rather than the fear of missing out.

Furthermore, earnings season has left valuations looking less stretched. "Twelve-month forward S&P earnings estimates are up 3.6% in the past month - the strongest seasonal start in years. These aren't just companies clearing some artificially low bar; they're actively reshaping the forward outlook," says Lord Fed.

In summary, the market is in an under-owned grind higher, going up because few believe that it should.

"And that's exactly why 6,500 won't be a ceiling - it could be a floor that we rocket past on our way to something much higher," he says. "You don't get a real top when half the street is still positioned for a disaster, you get melt-ups."

And this is more likely to occur during periods of lower trading volumes, such as the late summer. "Thin August liquidity means round numbers become magnets - pulling in stops, triggering systematic buying programs, forcing dealers to hedge into the move," says Lord Fed.

Yes, there are factors like a spike in inflation or exogenous shocks that could derail the rally. But otherwise, investors who were waiting for a dip will fret they are going to be left behind "and start paying up at any price," and resulting in a disorderly move through the resistance.

Markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are little changed, as are benchmark Treasury yields BX:TMUBMUSD10Y. The dollar index DXY is a touch lower, while oil prices (CL.1) consolidate and gold futures (GC00) are trading around $3,400 an ounce.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6373.45    0.69%   1.67%   8.36%    19.26% 
   Nasdaq Composite                                                     21,385.40  1.58%   3.61%   10.74%   27.44% 
   10-year Treasury                                                     4.278      6.00    -21.00  -29.80   43.20 
   Gold                                                                 3396.9     -1.11%  2.00%   28.70%   35.61% 
   Oil                                                                  64         -1.80%  -4.12%  -10.95%  -18.64% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

The U.S. consumer price index report for July will be published at 8:30 a.m. Eastern. Economists expect the headline annual inflation rate to rise from 2.7% in June to 2.8%.

U.S. President Donald Trump again extended his deadline for reaching a trade deal with China. Chinese exports to the U.S. will continue to face tariffs of 30% until November 10.

Nvidia shares (NVDA) dipped after reports China told its companies not to use the firm's H20 chips because of security concerns.

Richmond Fed President Tom Barkin is due to speak on the economic outlook at 10:30 a.m., and Kansas City Fed President Jeff Schmid will talk about the outlook for policy and the economy at 10:30 a.m.

Not everything is rosy in AI. Shares of BigBear.ai (BBAI) are plunging 28% after the AI analytics company dramatically lowered its outlook.

Hot stocks CoreWeave (CRWV) and Rigetti Computing (RGTI) reveal results after Tuesday's closing bell.

Best of the web

Europe builds for war as arms factories expand at triple speed.

Divergence emerges between human traders and computer-driven investors.

Big Tech pledged billions for new housing. The results aren't living up to the hype.

The chart

Benchmark Treasury yields have traded in a relatively tight range for the past few weeks while investors have been focusing on corporate earnings reports. Perhaps it's little surprise then that the correlation between equities and investment-grade corporate bonds has dropped significantly, as the chart from Edward K. Tom at the Cboe shows. But, as earnings thin out, and macroeconomic factors start to carry more heft, expect the correlation to be revived.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   TLRY    Tilray Brands 
   PLTR    Palantir Technologies 
   GME     GameStop 
   BBAI    BigBear.ai 
   AAPL    Apple 
   AMD     Advanced Micro Devices 
   PLUS    ePlus 
   INTC    Intel 

Random reads

Words on New York's streets: a statistical journey.

Jellyfish shut French nuclear reactors as heat wave builds.

Golf carts have taken over suburbia. Cue the resistance.

-Jamie Chisholm

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August 12, 2025 06:36 ET (10:36 GMT)

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