Gold broke out: Minimum Target $8,000

Gold miners: 5 Gold Miners to Own for $8,000 Gold

THE ARGUMENT IN BRIEF

→ Copper is the tell. Gold was about trust. Energy was about discipline. Copper is about the plainest force in economics — the world needs far more of it than it can dig up, and that gap is not closing. The one metal with a medical degree just printed its highest price in recorded history.

→ This is supply and demand before it is anything else. Demand marches from ~28 million tonnes today toward ~42 million by 2040 on grids, electrification and AI data centres. Supply cannot answer: only 5% of the last 35 years of discoveries came in the past decade — and the physical tape agrees, with London stockpiles falling for 42 straight days into the steepest backwardation since the 2021 squeeze.

→ And it sits inside a bigger clock. Equities, bonds and commodities turn on a 30-to-40-year cycle, and the turns are linked. A commodity bull is inflationary — bearish bonds, and sooner or later the thing that ends every equity bull. We are moving from a commodity-consuming world to a commodity-producing one, and that changes what you want to own for a decade.

→ The tape has spoken — across the board. Copper miners broke out relative to the S&P 500 for the first time in fifteen years. The mining ETFs cleared multi-year bases. This is no longer a chart you watch. It is a chart that has moved.

→ Part 2 has the names. This piece makes the case. The companion piece — seven copper stocks to own, each with its ten-year weekly chart, the Good Story / Good Chart scores, the valuation trap, the tripwires, and the honest case for just buying the ETF — is where we put money on it.

Most metals are stories. Copper is a bill.

Gold is a story you tell yourself about trust — about central banks, and fiat, and what money is when nobody is watching. It is a wonderful story, and we spent two pieces on it. Oil is a story about discipline — an industry that walked out of an extinction event leaner than it went in. Also true, also ours.

Copper is different.

Copper does not do stories. Copper does arithmetic.

You need a certain number of tonnes to wire a house, turn a motor, string a grid, cool a data centre. That number is going up, hard, for reasons nobody serious disputes. And the number of tonnes the world can produce is not keeping pace, for reasons that are geological and therefore rude — they do not care about your forecast. The gap between those two numbers is the entire investment case. Everything else is decoration.

That is why they gave the metal a nickname no other commodity has earned.

Dr. Copper.

The one economist on Wall Street with a perfect record, because it has no opinions, only orders. When the world is building, copper is bid. When the world is stalling, copper sags. It sits in every wire and every motor on Earth, so its price is a live readout of what the global economy is doing, not what economists think it will do.

And this week, the good doctor sent a message.

Let me show you what it said.

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First Time Here? Read This Paragraph

A good number of you subscribed in the last weeks, most from X, most because of gold. So nothing below assumes you have read us before.

arvy is a Swiss asset manager, regulated by FINMA, based in Zürich. We run a concentrated portfolio of roughly thirty quality businesses, and we co-invest our own capital alongside our clients. We publish the thinking behind it here. We are also the only Investor’s Business Daily partner in Europe, which is why the charts in these pieces often come from MarketSurge.

One rule governs everything we do, and it has a name: Good Story & Good Chart.

The Good Story is the business — the moat, the returns on invested capital, the balance sheet, whether management allocates capital like owners. The Good Chart is the market’s verdict on that business — the trend, the relative strength, whether large institutions are accumulating or distributing. We act only when the two agree. A great business with a broken chart is a watchlist item, not a position. A great chart on a mediocre business is somebody else’s trade.

For fifteen years, the copper miners were the first of those — a good story the tape refused to believe. Over the last months they started becoming the second. That transition is the entire reason this piece exists, and it is why we score both halves as numbers rather than argue about them in prose — more on that, and where you can look them up yourself, further down.

This is Part 1 of two, and it is the free one. It makes the case. Part 2 — seven copper stocks to own — is where we put money on it.

The Message: An All-Time High, Written Across a Century

Start with the single picture that made us write this piece.

Chart 1 — Copper (COMEX), monthly, 1969–2026

barchart· High-grade copper just cleared an all-time high — through every prior peak in the modern history of the contract.

That is not a five-year chart.

That is copper going back to the year men walked on the moon. And the price is at the very top of it — through the 2008 spike, above the 2011 boom, above the 2021–2022 squeeze that broke the London exchange. In early August 2026 the front contract touched roughly $6.71 a pound, the highest price for copper in recorded history, up more than 50% in twelve months.

Here is the rule we keep returning to in every one of these pieces, because it keeps being true: the longer the base, the higher the space. Energy built a fifteen-year base and broke it. Gold built a thirteen-year base and broke it. Copper just cleared a level that has capped it for the entire modern history of the contract. When price does something it has never done in fifty years, the correct response is not «it is overbought.» The correct response is «what changed?»

What changed is that the arithmetic finally arrived.

The Whole Case, in Two Lines That Refuse to Meet

Forget everything clever for a moment. The copper thesis is two lines on a chart that are coming apart, and every other argument in this piece is a footnote to them.

Chart 2 — Global copper supply vs demand to 2040

Bloomberg · The two lines track together, then simply diverge after 2030. The white space between them is the deficit — and it widens every year.

Demand — the top line — climbs relentlessly toward roughly 45 million metric tonnes by 2040. Supply — the bottom line — tries to follow, stalls around 2030, and then the two lines come apart. That widening white space is the whole reason to read on. Now break the demand line into its parts, because this is where people underestimate it.

Chart 3 — Global copper demand by sector, 2025–2040

GS · The ordinary economy grows quietly. Stacked on top: three blocks that barely existed a decade ago — energy transition, AI & data centres, defence.

The grey block at the bottom — the ordinary economy, houses and cars and plumbing — grows quietly from 18 to 23 million tonnes. Nothing dramatic; just a growing world. But stacked on top of it are three blocks that barely existed a decade ago. The energy transition — every solar farm, every wind turbine, every EV carries three to four times the copper of the machine it replaces — climbs from 9 million tonnes toward 16. AI and data centres — the copper in the power delivery, the cooling, the grid connections behind every rack of GPUs — goes from 1 to 3. Add defence on top. Total: from 28 million tonnes today to 42 by 2040.

And now fasten your seatbelt, dear reader.

Two of those three growth blocks — the AI build-out and the electrification of everything — are the same forces driving the technology bull market that everyone already owns. You cannot be bullish on data centres and bearish on the metal that wires them. Every investor cheering the AI capex boom is, whether they know it or not, cheering for copper. The Nasdaq and Dr. Copper are, for once, on the same side of the trade. They just have not both been paid yet.

And relative to the thing everyone owns, copper has never been cheaper.

Copper-to-Nasdaq ratio · Bloomberg, analysis by Tavi Costa · via Azuria Capital

Here is that same idea priced as a ratio. Copper divided by the Nasdaq 100 sits near a multi-decade low, curling up off a base that rhymes with the one it made in the late 1990s — right before the last great commodity decade. When the metal that wires the AI build-out is this cheap relative to the AI build-out itself, one of those two things is mispriced. We think we know which.

That is demand. One half of the formula.

Now the cruel other half.

Supply: The Part That Cannot Answer

Demand is a forecast. Supply is a fact — and the fact is ugly if you are a buyer of copper and beautiful if you own the miners.

Chart 4 — Copper discoveries are drying up

Azuria Capital · If discovery had been steady, the last decade should hold ~29% of the last 35 years’ finds. It holds 5%.

If discovery had been steady over the last 35 years, the most recent decade should hold about 29% of the finds. It holds 5%. The easy copper — the stuff that outcrops at surface, the deposits you could practically trip over — has been found. What is left is deeper, lower-grade and under cover, in countries where the permit takes ten to fifteen years and the government may rewrite the rules halfway through. Freeport’s own Grasberg — the second-largest copper mine on Earth — spent much of the last year offline after a fatal mud rush, and will not be back to full capacity until 2029. Chile, the Saudi Arabia of copper, has cut its production forecast for two straight quarters. Codelco paused an expansion after a seismic scare. This is not a market that can flip a switch.

And the demand it must answer is staggering.

Azuria Capital · We must mine as much copper in 25 years as in all of human history — R. Friedland / S&P Global; University of Michigan (~1,100 Mt by 2050)

Put the two halves together and the vice closes. One chart from S&P Global makes it visceral: humanity mined roughly 700 million tonnes of copper in all of recorded history to 2025 — and on modest 3–3.5% GDP growth alone, we need to mine another 700 million tonnes in the next 25 years. As much again, in a generation. And that figure excludes electrification entirely; add EVs, grids and AI and the models run past 1,100 million tonnes by 2050, against roughly 23 million tonnes of annual mine supply. The demand line is not aggressive. It is arithmetic meeting a supply base that only replaced 5% of its discoveries in a decade.

You cannot un-invent this problem with a higher price.

A higher copper price does not make a new mine appear — it makes one appear in fifteen years, if the permit clears and the seismologists cooperate and the government stays bought. That lag, between the price signal and the supply response, is the engine of every commodity supercycle in history. It is why they overshoot on the way up. The cure for high prices is supply, and supply takes a decade to arrive.

Which means, for the rest of this decade, the arithmetic resolves only one way: through price.

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And the Tape Already Knows

Here is the thing about a metal with a medical degree: it does not wait for the analysts. And the clinical signs are all flashing at once.

Chart 5 — Copper in backwardation as LME stockpiles drain

Bloomberg · Buyers are paying the biggest premium for metal now-versus-later since the 2021 squeeze — because the warehouse is emptying.

Two lines, one diagnosis. The top panel is the front-month spread — the premium buyers will pay for copper now versus copper later. It just spiked to its biggest premium since the 2021 supply squeeze that forced the LME into emergency intervention. The bottom panel is why: London warehouse stockpiles falling off a cliff, down for 42 straight days — the longest run of declines since 2014 — with nearly half of what remained already spoken for.

When buyers pay a fat premium to get metal today rather than in three months, that is not a chart pattern or a sentiment survey. That is somebody who needs copper, in the physical world, paying up because the warehouse is empty. Backwardation this steep is the market’s own confession that the deficit is here now, not in 2030. The tape is not forecasting the shortage. It is living it.

This is what Jesse Livermore meant about reading the message of the tape rather than the opinions of analysts. The tape does not care what copper should cost. It is telling you, in the plainest language a market has — a premium for immediate delivery — that there is not enough.

Now Zoom Out: The Clock Behind the Clock

Everything above explains why copper is bid today. But we run a strategy that thinks in decades, not quarters — and copper’s real significance is that it is a hand on a much larger clock.

Here is the idea, and once you see it you cannot unsee it.

Equities, bonds and commodities move together on a 30-to-40-year cycle, and the major turning points are linked. Strategically, equities and commodities are negatively correlated — a secular bull market in commodities is bullish inflation, which is bearish bonds, and it is inflation that sooner or later kills every bull market in equities. So these three great asset classes take turns. When commodities lead, they poison the ground financial assets grow in. When commodities sleep, financial assets feast. They do not thrive together, and they never have.

Chart 6 — The 110-year dance: S&P 500 vs CRB commodities

A century of alternating bulls and bears. Every commodity bull phase was a long grind for equities in real terms.

Look at the labels. Every time commodities were in a bull phase, equities were grinding through a bear or a long sideways slog. The 1970s belonged to commodities and were miserable for stocks in real terms. The 1980s and 1990s belonged to financial assets, and commodities went nowhere for two decades. The 2000s belonged to commodities again — the last supercycle. The 2010s, overwhelmingly, to the asset-light growth machine. Each turn felt permanent while you were inside it. Each one ended, and the baton passed.

And here is where the clock says we are.

Chart 7 — The commodity 30-year cycle

Major peaks roughly every thirty years: 1920, 1950, 1980, 2008 … and the next window around 2038–2040. Which puts us in the early-to-middle innings of the up-leg.

Major commodity peaks have arrived roughly every thirty years: 1920, 1950, 1980, 2008. Space those out and the next great commodity peak lands somewhere around 2038–2040 — which means we are, right now, in the early-to-middle innings of the up-leg toward it. The momentum divergence at the base of that chart, turning up after decades, is the tell that the new commodity cycle has already begun.

Now put the mirror image beside it — what this means for the thing most people actually own.

Chart 8 — The S&P 500, 30-year cycle: a top underway

Same clock, opposite hand. Not a crash call — a character change, as the 40-year tailwind of falling yields turns into a headwind.

Same clock, opposite hand. The equity cycle that ran from the 2009 low has the look of a top forming into the back half of this decade — not tomorrow, not a crash call, but a character change. The long tailwind of falling yields and disinflation that lifted financial assets for forty years is turning into a headwind. And the mechanism is exactly the one copper embodies: a commodity bull feeds inflation, inflation feeds yields, and rising yields are sand in the gears of every long-duration financial asset that dominated the last cycle.

We are, in one sentence, moving from a commodity-consuming world to a commodity-producing one. The last cycle rewarded the companies that used cheap resources to scale weightless businesses. The next one rewards the companies that own the resources everyone suddenly needs and cannot quickly make more of.

Copper is the purest expression of that turn. Which is why we are not writing about a trade. We are writing about which side of a thirty-year clock you want to be standing on.

And the rotation within the real-asset trade has an order to it.

Gold → Copper → Energy → Agricultural Commodities? · Bloomberg, analysis by Tavi Costa · via Azuria Capital

One more pattern worth your eye, because it tells you where copper sits in the queue. Within a commodity bull, the money tends to rotate in sequence — precious metals first, then the industrial metals, then energy, then the agricultural complex. Gold and the gold miners already broke out (we wrote the two pieces). Copper and the copper miners are breaking out now — the second baton in the relay, exactly on schedule. Energy is stirring. Agriculture is the «?» still waiting at the back. If the sequence holds, copper is not late to the commodity trade. It is precisely on time.

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Why We Love These as Businesses, Not Just Bets

One more thing before we hand the tape the microphone, because it matters to how we invest rather than how we speculate.

We have a shorthand for the assets we like structurally: HALO — Heavy Assets, Low Obsolescence. Something physical, brutally expensive to replicate, and in no danger of being disrupted by a clever line of software. A copper orebody is close to the platonic ideal of the category. Nobody is coding an app that replaces a proven tonne of copper in the ground. Permitting takes ten to fifteen years. And the decade of underinvestment we just walked through means the replacement cost of these assets rises whether the share price cooperates or not.

That is the quiet reason a commodity we would normally treat with suspicion earns a place in a quality portfolio. We are not abandoning our religion — returns on capital, capital discipline, moats. We are noting that in a copper deficit, the moat is the orebody, and the returns on capital are about to be spectacular for the companies that already own one.

The Tape Has Spoken — Across the Board

So the arithmetic says deficit. The physical market says deficit now. The 30-year clock says we are on the commodity side of it. The last question is the only one that pays: has the market agreed yet? Because a great story with a broken chart is something you watch, not something you own.

It has agreed.

Loudly.

Chart 9 — Copper miners relative to the S&P 500 (COPX / SPY), weekly

All Star Charts · A fifteen-year downtrend in relative strength, curling up off a vast base and breaking the ceiling that capped every rally since 2015.

This is the chart that closes the argument.

It is copper miners divided by the S&P 500 — how the sector is doing relative to the index everyone owns. For fifteen years that line went one way: down, then sideways along the floor, a decade and a half of underperformance that taught investors the sector was uninvestable. Look at the right edge. It has curled up off a vast rounded base and is pushing through the ceiling that capped every rally since 2015. Relative strength — the single most important thing a technician looks for — has turned in copper’s favour for the first time in a generation.

And it is not just the ratio. The absolute charts have broken too.

Chart 10 — iShares Copper & Metals Mining ETF (ICOP), weekly

All Star Charts · A textbook cup-and-handle, cleared to new highs, with Fibonacci extension targets stacked above.

A textbook cup (not necessarily with-a-handle), cleared to new highs. When the metal makes an all-time high, the relative-strength line breaks a fifteen-year downtrend, and the miner ETFs clear multi-year bases all at once — that is not three coincidences. That is one message, arriving on three channels.

The tape has spoken. The only thing left to decide is how you want to own it.

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The Risks

Now the risks and what we must know.

1. First, and most important: part of this move is a tariff mirage, not pure structural demand. For much of 2026, copper has been pulled physically into US warehouses ahead of a pending Washington decision on refined-copper import tariffs — more than 200,000 tonnes arrived at US ports in a single month, the largest inflow on record. That front-running is real demand for delivery, but it is borrowed demand: metal moved forward in time to beat a tariff, not consumed by a motor or a grid. It has widened the COMEX premium and flattered the price. When the tariff question resolves, some of that arbitrage unwinds, and copper can flush hard even with the long-run story fully intact. Anyone showing you the all-time high without mentioning the tariff distortion is showing you half the chart.

2. Second, copper is violently cyclical, and «structural bull» is not a hall pass. In 2022 — inside exactly the structural story we are describing — copper fell 37% in four months. It will do something like that again at some point in this cycle, because that is what industrial metals do. A deficit that widens to 2040 tells you nothing about the drawdown you must survive in any given quarter. Commodities and commodity related stocks, after all, remain commodities and commodity related stocks. You know our view on gold miners…

3. Third, the demand base still leans on China. The old copper engine — Chinese construction — is structurally fading, and the whole bull case rests on the new engines (grids, electrification, AI) more than replacing it. We think they do. But a hard Chinese industrial shock would still hurt in the near term, and a global recession bruises every commodity thesis, copper included.

4. Fourth, the cure exists — it is just slow. High prices do eventually summon supply. Boliden’s Laver, Bougainville’s Panguna, Tampakan in the Philippines, the leaching of old stockpiles — the projects are real. They are simply a decade out. The bear case is not that new copper never comes; it is that if you are wrong about the timing of demand, the supply eventually arrives to meet a softer market.

Our answer is not that the bears are wrong — on volatility they are right, and it will be brutal — but that the bear case is largely a near-term price-and-timing argument, while our thesis rests on a decade-long supply deficit that a tariff wobble or a bad quarter does not repair. The discipline is to own the deficit and size for the drawdown, not to pretend the drawdown will not come.

So the story holds, the chart confirms it, and the strongest objections have answers. Which raises the question we are most often asked: fine — but how do you measure any of this, rather than just assert it?

The Universe, Ranked — Before We Name Names

We built the screening engine precisely so we could stop having this argument in prose and start measuring it. Every month, 2’000-plus companies and 600-plus ETFs are scored 0 to 100 on the «Good Story» — the moat, the returns on capital, the balance sheet — and 0 to 100 on the «Good Chart» — the trend, the relative strength, the message of the tape.

Two numbers, one Composite, updated monthly at screening.arvy.ch.

Here is what it says about copper right now, and it is worth thirty seconds even if you never buy a share.

Reminder

All paid subscribers not only have access to all research but also our whole screening of 2’000+ stocks and 600+ ETFs

Want to have a look?

Chart 11 — arvy screening: copper & mining equities, ranked by Composite

arvy · Southern Copper sits at the very top — a 92.5 Composite, with Story (91.3) and Chart (93.7) in rare full agreement.

Chart 12 — arvy screening: copper ETFs, same two axes

arvy · The Sprott Junior Copper Miners fund scores the highest Good Chart of the three — where the tape’s momentum runs hottest.

Two things jump off those screens. First, Southern Copper sits at the very top of the equity list — a 92.5 Composite, a 91.3 Story and a 93.7 Chart, the rare name where both lenses agree completely. Second, the spread below it is enormous: a low-cost, high-margin operator and a marginal, indebted, single-mine producer can both be «copper stocks» and be completely different instruments. The screen exists so you do not confuse the two. And note the ETFs — the junior-miners fund scores the highest Good Chart of the three, which tells you exactly where the tape’s momentum is running hottest.

We cross-checked the whole thing against the MarketSurge sector screen, and the copper complex tells the same story from the other side of the street.

Chart 13 — MarketSurge: mining sector, 158 names by Composite Rating

arvy · The top of the entire mining table is copper, not gold: Ero Copper 99, Southern Copper 97, Freeport 96, Teck 96.

The single most important detail on that entire list: the top of the table is copper, not gold. Ero Copper at 99, Southern Copper at 97, Freeport at 96, Teck at 96 — the four highest composite ratings in the entire 158-name mining universe belong to the copper and diversified complex, every one carrying a B industry-group rating while the gold names below them carry D+. We said this from gold’s side in the miners piece and it is worth repeating from copper’s side: the market currently rates the copper complex the single strongest place to be in all of mining, and it has been right about that for six months. That is the group-rank tailwind doing its work, and it blows in copper’s favour.

What Part 2 Does With All of This. Tomorrow.

This piece made the case. The companion piece spends it.

Next door — «Dr. Copper: 7 Stocks to Own» — we name the seven, each with its weekly chart and exactly what the tape is saying: Southern Copper, the one our screen ranks first; Freeport, the leveraged bet with a Grasberg problem; BHP and Rio, the diversified giants; Teck, the pure-play-in-progress; Antofagasta, the disciplined Chilean; and one smaller, geared name for readers who want more torque and understand the price of it.

You get the Good Story / Good Chart score for each, the valuation trap hiding inside the sector — the one where a stock looks «cheap» on next year’s earnings precisely because the analysts have modelled the copper price down — the named tripwires that would take us out, and the answer to the question most of you actually want: whether to bother with seven names at all, or simply buy the miners’ ETF and never think about it again.

Stay tuned for tomorrow.

Part 2 · «Dr. Copper: 7 Stocks to Own» — read it next. Tomorrow.

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Legal Notice: At the time of publication of this article, the companies mentioned may or may not be portfolio holdings of arvy. Such securities may or may not be included in the portfolio at any point in the future. This document has been prepared solely for informational and marketing purposes and does not constitute an invitation, offer, or recommendation to acquire or sell any financial instruments or to engage in any other transactions. The relevant prospectus and key investor information documents (e.g. PRIIPs KID / Key Information Document) are available free of charge from arvy AG.

THE ARGUMENT IN BRIEF

→ The correction is over. Gold broke a six-month decline last week on volume 44% above normal. Heavy volume is our evidence that institutions, rather than a thin summer market, did the buying.

→ Minimum target $8,000 an ounce, upside case $10,000. That is the weaker of the two prior secular bulls repeated from this cycle’s low — and it needs roughly 29% a year to 2028, against the 28% gold has delivered over the past twelve months.

→ The honest half. This was a wedge break, not a new high. There is trapped supply overhead, the mining group ranks 104th of 145 industry groups, and silver’s rally was not funded by anybody.

→ Below the line: why the pattern should repeat at all. A multiple that repeats without a mechanism is pattern-matching. The mechanism is that the buyer setting gold’s price changed in 2022 — plus the strongest argument against us, and what a respected technical strategist says happens in the next three weeks.

→ Tomorrow, part 2. What $8,000 gold does to mining margins, including the one we started buying this week, the one we would add next, and why we are not buying the name our own scorecard ranks first, and the honest case for simply buying GDX instead.

The old-economy trilogy, in order — Part 1 · Energy · Part 2 · Gold · Part 3 · The Miners

And: 5 Gold Miners to Own for $8,000 Gold

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«Volume is the effort. Price is the result.»

Richard Wyckoff’s principle, roughly a century old

In the last week of January, gold touched just under $5,600 an ounce and silver went through $120. Then both of them came apart.

For six months after that, the most exciting corner of the market was the quietest. Gold fell more than a fifth. The miners gave back a fifth in a single quarter. Silver lost close to half. Everybody who had arrived late went home, and the people who write about gold for a living stopped being asked about it.

On Friday it stopped being quiet. Something bought gold, and bought it in size.

Nobody rings a bell to say who. There is no announcement, no register, no list of names — and the people large enough to matter are the ones with the most reason to stay out of sight while they work. Which leaves you with an old problem: how do you work out who came through, and how many of them there were, when you did not see it happen?

A scout never sees the army.

He arrives after it has gone. What he has are traces — the depth of the ruts, the width of the trampled ground, how far the fires have burned down. From those he works out three things he did not witness: which way they went, how many they were, and how long ago they passed.

Markets work exactly like that. You never see who bought. You see what the buying left behind, and it leaves precisely two traces.

Price is the direction. Volume is the number. Almost everybody reads the first trace and stops there.

Last week, in gold, the trail was wide.

Gold rose more than 7% in five trading days, to around $4,340 an ounce, on volume some 44% above its normal level. The largest gold-miner fund gained over 20%, on volume up 37%. Agnico Eagle, one of the biggest producers in the world, added 23% on volume 41% heavier than usual. Those are weekly figures, not daily ones.

A word on that second number in each pair, because it is the one that matters and the one most people skip. Volume is simply how much changed hands. When a week’s volume runs more than 40% above normal, we call it heavy — and heavy is our evidence that large institutions were doing the buying, rather than a thin summer market drifting upward on nobody in particular. A price can rise on almost no participation. It cannot rise on a week like this one without somebody large having made a decision.

And that buying arrived out of a specific shape on the chart — a falling wedge, six months in the making, running all the way back to the January peak. We explain what that is, and why it matters less than most people claim, further down.

So here is the number this piece is built around, stated at the top rather than buried.

We think this cycle ends with gold above $8,000 an ounce. We think $10,000 is the upside case rather than the fantasy. And we think the ounce is the worse way to own it.

That is a large claim and it deserves arithmetic rather than adjectives, so most of this piece is the arithmetic. It comes from one place: the two comparable secular bull markets in gold, and what happens if this one merely repeats the weaker of them. Tomorrow’s part two takes the same number and runs it through five mining income statements, which is where the money actually is.

What you will not get in the next fifteen minutes is a promise that any of this starts on Monday. The proper buy points are still 16% to 30% above Friday’s close. The mining group ranks 104th out of 145 industry groups (will be improving with the next screening update mid-month, stay tuned). Silver’s rally last week was not funded by anybody. We put all three at full strength, before and not after the part you would rather hear.

If you did not want to buy the June dip, and a good number of you wrote to say exactly that, the tape has now handed you a different sort of message. Pro-cyclical instead of contrarian. You are no longer trying to catch something on the way down; you are following something that has already turned in front of witnesses.

One note on timing, because it is the honest reason to read this now rather than in October. The interesting window in a setup like this one is the gap between the wedge breaking and the price reaching the proper buy point of the base. That is where positions get built, quietly, by people who did the work before the move became obvious. It is currently between 16% and 30% wide. It is measured in weeks, not quarters, and it closes by being filled.

Worse entry price. Better probability. Let me show you both halves honestly, because the second half is the one that keeps you out of trouble.

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First Time Here? Read This Paragraph

Several thousand of you subscribed in the last weeks, most of you from X, most of you because of gold. So, nothing below assumes you have read us before.

arvy is a Swiss asset manager, regulated by FINMA, based in Zürich. We run a concentrated portfolio of roughly thirty quality businesses, and we publish the thinking behind it here. We are also the only Investor’s Business Daily partner in Europe, which is why the charts in this piece come from MarketSurge.

One rule governs everything we do, and it has a name: Good Story & Good Chart.

The Good Story is the business — the moat, the returns on invested capital, the balance sheet, whether management allocates capital like owners. The Good Chart is the market’s verdict on that business — the trend, the relative strength, whether large institutions are accumulating or distributing. We act only when the two agree. A great business with a broken chart is a watchlist item, not a position. A great chart on a mediocre business is somebody else’s trade.

Gold and the gold miners spent the last six months as the first of those. Last week they started becoming the second. That transition is the entire reason this piece exists, and it is why we score both halves as numbers rather than argue about them in prose — more on that, and on where you can look them up yourself, further down.

What We Said in June — and What the Tape Did Next

Seven weeks ago, we published three pieces in five days, all arguing one idea from three directions: the assets the last decade left for dead were quietly taking the baton.

Trilogy, Part 1 — «The Old Economy (Energy & Gold) Strikes Back»: energy breaking out of a fifteen-year base. We said in that piece that breakouts rarely run straight up, that they pull back to digest in a three-wave shape, and that a well-formed pullback of exactly that kind would be the gift to a patient buyer.

Trilogy, Part 2 — «In Gold We Trust»: gold deeply oversold on momentum, and freshly forgotten after a violent deleveraging that hit the speculative positioning rather than the structural bid.

Trilogy, Part 3 — «Game On for the Gold Miners»: the HUI reclaiming its 2011 ceiling after fourteen years, purified balance sheets, and an early Stage 2 rather than a late one.

Then the pullback did what pullbacks do, which is take longer and hurt more than the plan allows for. Gold had peaked just under $5,600 in the last week of January, silver near $120, and the unwind from those levels ran for six months. The miners’ ETF gave back roughly a fifth over the June quarter alone. Silver did something considerably worse, and we will come to that, because it is the most interesting disagreement on the board right now.

Last week, the whole complex resolved at once.

One honest note before we go further. We published the miners piece three days before the June quarter closed, near the lows but not at them, and anyone who acted on it sat through several uncomfortable weeks before this move. We would rather write that down than round the timing in our own favour.

We were writing about a regime, not a fortnight.

How the Cycle Gets You to $8,000

In the June trilogy’s gold piece we made the case that gold moves in seven-to-eight-year cycles, that it broke out of a multi-decade base, and that the rhythm points to a major peak somewhere around 2028. That was shape and timing. It said nothing about magnitude.

Magnitude comes from a simpler question: when gold has done this before, how far did it go?

Here is the whole rhythm in one picture — the chart our friends at Global Macro Cycle Partners have been running for years, and the reason we started looking at gold again in the first place.

Chart 1: Gold, monthly since 1970 — the seven-to-eight-year cycle, the secular breakout, and the 2028 projection.

Source: GMCP, gold monthly — 7–8 year cycle tops and the 2028 projection · shown with permission

Count the tops: 1974, 1980, 1987, 1994, 2003, 2011, 2020. Seven or eight years apart, every time, for half a century. The low of December 2015 and the higher low of October 2022 sit exactly where the rhythm says they should, and the projection points to a cycle top in 2028.

Note the two numbers written on the advances, because we are about to arrive at them independently. GMCP marks the 1970s run at 2385% and the 2000–2011 run at 760% — which in their convention means 23.85 times and 7.6 times the starting price. And the target band on the right reads 8,800 / 10,000.

We did the arithmetic separately, from raw cycle lows, without looking at their projection. We landed in the same place. Two people working from the same history and arriving at the same number is not proof of anything, but it is more comfortable than working alone.

There have been three secular bull markets in gold since the dollar left the gold standard. Only two of them are usable as analogies, and that matters, so we show all three.

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Chart 2: Three secular bulls in gold, measured from their cycle lows.

Source: arvy, from London/COMEX spot cycle lows and peaks · August 2026

The 1971–1980 run multiplied the price roughly 24 times, from $35 to $850. Ignore it. Gold spent that decade escaping a fixed official price, and a repricing is a different animal from a bull market. Anybody quoting 24× at you is selling something.

The two comparable cycles are the ones that ran in a free market:

The final leg of the 1970s, from the August 1976 low of $103 to the January 1980 peak of $850 — 8.2 times.

The 1999–2011 bull, from $253 in August 1999 to $1,921 in September 2011 — 7.6 times, over roughly twelve years.

Now apply that to the cycle we are actually in. Gold bottomed at $1,046 in December 2015 and around $1,680 on October 2022. It trades near $4,343 today. That is 4.2 times the low, in year eleven, or 2.6 times from the last cycle low, in year four.

Repeat the weaker of the two comparable cycles — the 7.6× of 1999–2011 — and this one finishes at $7,950.

That is where the $8,000 comes from. It requires no new theory, no hyperinflation, and no collapse of anything. It requires gold to do what gold did the last time it did this, at the lower end of the range.

Which is why we call it a minimum rather than a target. Match the 1976–80 finish at 8.2× and you get $8,580. Run to a round ten times — still short of anything the 1970s produced — and you get $10,460.

The timing check, which is the part that keeps you honest

A multiple with no date attached is a horoscope. So put the two together.

The 1999–2011 cycle took a little over twelve years from low to peak. Ours began in December 2015, which makes 2028 year thirteen — close enough to the same rhythm, and precisely where the trilogy’s cycle work pointed independently. So, the question becomes: what annual rate gets from $4,343 to $8,000 by the end of 2028?

Roughly 29% a year. To reach $10,000 over the same window: roughly 42% a year.

Look hard at the first number, because it is smaller than it sounds. Gold is up about 28% over the past twelve months. It rose 64% in 2025. The path to $8,000 does not require gold to accelerate — it requires gold to keep doing approximately what it has been doing for two more years.

The path to $10,000 does require acceleration. And that is exactly the shape both prior cycles took: long grinding advances that finished in a near-vertical melt-up. Gold more than tripled in the eighteen months into January 1980. It gained more than 70% in the eighteen months into September 2011. We have just watched a smaller version of that behaviour — $5,000 to just under $5,600 in a single week in late January, then a six-month unwind. If the pattern holds, the melt-up is not behind us. It was a rehearsal.

Anatomy of a Falling Wedge

A falling wedge is a pullback with a particular geometry: two boundaries, both sloping down, converging toward each other. Price keeps making lower highs and lower lows — sellers are still setting the pace — but each swing is smaller than the one before it. The range is tightening.

That contraction is the whole message. Supply is being used up. The people who wanted out are getting out, and there are fewer of them each time.

Chart 3: Falling wedge versus flat base — the same breakout, two very different probabilities.

Source: arvy · schematic illustration · August 2026

There are three things we want to see, and they matter in this order:

1. Converging boundaries. Lower highs and lower lows, with the range narrowing. A wedge whose boundaries run parallel is a channel, and channels tend to keep going down.

2. Volume drying up through the formation. This is the part most people skip, and it is the best part. Falling price on steadily falling volume means the selling is exhausting itself — no new supply is arriving, only the tail end of the old supply. Falling price on rising volume means the opposite, and the pattern deserves to fail. Look at the silver chart further down for the textbook version of the dry-up.

3. Volume expanding on a weekly close outside the wedge. A price can be walked up through thin air. Nobody can fake a week 40% above average volume that closes near its high — that is a decision taken by institutions who have to report what they own, and institutions do not build positions in an afternoon. Note the word close. Intraweek pokes above a trendline are noise, and the trendline itself is drawn by hand, which makes it an opinion with a ruler attached.

Put those three together and you have the pro-cyclical message: the correction is finished, the marginal seller is gone, and somebody large has decided the discount is enough.

The best version of this pattern is quiet on the way down and loud on the way out. That is precisely what gold and the miners just delivered.

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Big Volume Doesn’t Whisper

In the trilogy’s opening piece we wrote that markets speak softly at tops and loudly at inflection points. Here is last week, ranked by how loudly each one spoke:

Source: MarketSurge (IBD), weekly data as of the close of 7 August 2026.

Two of those three moves were paid for. One of them was not.

This is why we keep saying that volume is the only part of a chart that cannot be manufactured. Price is an opinion until somebody has to fund it. A 20% week on heavy volume tells you that large pools of capital reached the same conclusion in the same five days, and that they were willing to pay up rather than wait for a better fill. That is the behaviour of a buyer with a mandate, not a trader with a hunch.

Every number in that table — and the same two for the other 800 companies and 300 ETFs we track — sits in our screening tool at screening.arvy.ch, scored and updated monthly (and ad-hoc during earnings season or elevated volatility). You do not have to take our word for which part of this complex is confirming and which is not. You can look it up.

Among the five large-cap producers and royalty names we follow most closely, the same split shows up — and it does not fall where most people would guess. The two with the strongest fundamentals on our screen are not the two with the strongest volume confirmation. We publish that table in part two tomorrow.

What the Three Charts Actually Say

Gold — the cleanest confirmation

Chart 4: SPDR Gold Shares (GLD), weekly — a 7.25% week on volume 44% above average.

Source: MarketSurge (IBD), GLD weekly · screenshot 10 August 2026

The volume bar at the right edge is the story. Gold moved 7.25% in a week, which for the metal is a large move, and it did so on volume 44% above average. Price closed back above the moving average it had spent the whole decline underneath, and it did it decisively rather than by a hair.

The honest ledger on the same chart: gold sits about 22% below its 52-week high, its relative-strength rating is a limp 37, and its accumulation grade is D+. All three of those describe the past six months rather than last week — but they also tell you how much repair work is still ahead. One good week does not undo two quarters of distribution. It starts to.

Silver — the odd one out

Chart 5: iShares Silver Trust (SLV), weekly — the textbook volume dry-up, and the confirmation that has not arrived.

Source: MarketSurge (IBD), SLV weekly · screenshot 10 August 2026

Look at the shaded volume corridor and the arrow through it. This is what point 2 above looks like in real life: a long, orderly, relentless decline in participation all the way down the wedge. Textbook. If you wanted a picture to explain the dry-up to somebody, this is the one to use.

And then look at last week. Silver rose 9.82% — and volume came in almost 8% below average.

That is a rally nobody funded. It is the sort of move that can easily be short covering, or the metal being dragged along by gold rather than bid on its own account. We would not call it fake. We would say it has not been paid for yet, and until somebody funds it, silver sits in a different bucket from gold and the miners this week.

The other number on that chart deserves respect: silver is roughly 48% below its 52-week high. That is what happens after a parabola. Silver went vertical into late January, roughly doubled in a year, and then gave back close to half. The people who bought the top of that move are still up there, and there are a lot of them. Of everything in this complex, silver has the most overhead supply and the most repair to do.

Fun fact for the dinner table, and a Swiss one. A commonly cited estimate is that something like two-thirds of the world’s gold passes through a Swiss refinery at some point in its life. Four of the largest refineries on earth sit in this country, most of them in Ticino, a couple of hours from where this is being written. We do not mine an ounce of it. We just melt it, stamp it, and pass it on — which is, when you think about it, an extremely Swiss position in the value chain.

Chart 6: Silver ETF capital flows — the 100-day rolling change in SLV’s fund assets.

Source: Azuria Capital / Tavi Costa, from Bloomberg data · chart as of 6 July 2026

And here is the other half of the silver picture, which complicates the paragraph above in a way we think is bullish rather than bearish.

That line is the hundred-day rolling change in the assets held by the silver ETF. It sits at minus 53%. The dashed line at minus 50% had never been broken in the twelve years of the series — not in 2016, not in the 2022 bear, not once. For scale, the same measure spiked above plus 250% in the summer of 2020.

So, the reason silver’s rally was not funded is that the fund money is no longer there to fund it. It has already gone. That is what capitulation looks like from the inside, and on a contrarian reading it is an argument for silver rather than against it: the marginal seller in an exchange-traded fund cannot sell what he has already sold.

We would still rather see the volume before we act on it. Flows tell you where positioning has got to. Volume tells you when it has turned. Right now silver has the first without the second, and that is a watchlist condition rather than a buy.

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The miners — the pattern in its clearest form

Chart 7: VanEck Gold Miners ETF (GDX), weekly — the falling wedge, and the break out the top on 37% above-average volume.

Source: MarketSurge (IBD), GDX weekly · screenshot 10 August 2026

Here the geometry is unmistakable. Two red lines converging since the last week of January, six months of lower highs and lower lows, and a 21.31% week that closes clean through the upper boundary on volume 37% above average.

Three details worth your attention. First, the three-month relative strength has already climbed to 95 while the six-month sits at 47 — leadership is being rebuilt from the front. Second, the accumulation grade of C is mediocre, which fits a fund that has spent the period being sold and has had exactly one good week. Third, and most important, the proper pivot is still 23% above Friday’s close.

So: a real change of character, on real volume, still 23% below the point where the market would actually settle the argument.

The Honest Half: A Wedge Is Worth Less Than a New High

Now the part that we would want read twice, because it is the reason we are calling last week a good development rather than an all-clear.

Every price above where we stand today is a person who bought there.

That is overhead supply, and it is the most underrated force in markets. Somebody bought gold miners near the January highs. They have watched the position sit underwater for months. They have made a private promise to themselves — the one every investor has made at some point — that if it ever comes back to break-even, they are out. That selling is patient, it is real, and it has no interest whatsoever in your thesis. It simply waits at a price.

Set that against a stock making a new all-time high. Every single holder is profitable. Nobody is waiting to sell at break-even, because break-even is behind them. There is no supply overhead, only air. That is what «line of least resistance» actually means, and it is why the flat base on the right of Chart 3 carries better odds than the wedge on the left, even though both are technically breakouts.

And there is a second reason we care about new highs, one that matters more to us as fundamental investors than as chart readers. A new high is the market’s public verdict that the story is being proven. Good Story and Good Chart converge at exactly that point: the argument has been settled in front of everyone, in cash, and the last sceptic has been paid off. Until then, you and the tape are still negotiating.

The distance to that point is measurable, and it is not small. For the miners’ ETF, the proper buy point of the actual base sits 23% above Friday’s close. Across the individual large-cap producers and royalty names it runs from 16% to 30% — we publish the name-by-name table in part two tomorrow.

Read that carefully, because it is the single most disciplined idea in this article. The wedge breakout that just happened is a change of character. The proper buy point is a different event entirely, and conflating the two is how people end up with a full position at the wrong price.

So, what should you expect between here and there?

Chop. Backing and filling. Rallies into the old highs that stall and give a chunk back. Retests of the wedge line from above, which is normal and healthy. In stage-analysis language, this is a Stage 1 base attempting to become Stage 2, and Stage 1 is famously the stage that tests your patience rather than your courage.

And the item we would be embarrassed not to mention: the gold and silver mining group currently ranks 104th out of 145 industry groups (it will be improving in the next update due to price appreciation), with a group relative-strength score of 39. By the rules of the methodology we use, you buy from the top of the group table, not the bottom third of it. The counter-argument is that group rank is built from six-month price action, which means it is looking straight at the drawdown we just came out of and will lag badly on the way up. Both statements are true. We are telling you which rule we are bending and why, rather than quietly leaving it out.

Which Is Exactly What the Screen Is For

The reason we built the screening engine was to stop having this argument in prose. Every month, more than 800 quality companies and 300 ETFs are scored from 0 to 100 on the «Good Story» — the moat, the returns on capital, the balance sheet — and from 0 to 100 on the «Good Chart» — the trend, the relative strength, the tape. Two numbers, one Composite, updated monthly at screening.arvy.ch.

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It exists precisely so that a week like this one can be measured instead of felt. In June, the entire precious-metals complex had a strong Story score and a broken Chart score — the profile of something you watch rather than something you own. That gap is the thing that just started to close, and the Chart side of the complex is where the next monthly update will show the largest movement in the whole database.

What that means in practice, for anyone who would rather check than be told:

• The ETFs in this article are in there — GLD, SLV and GDX, with their Story score, their Chart score and the blended Composite, alongside roughly three hundred others.

• So are the companies — more than 800 of them, scored on the same two axes, so you can compare a fund against a business without changing units. Every miner in tomorrow’s part two is in there today.

• So is everything we did not write about. The juniors, the developers, the silver names, the energy names from the June trilogy. If this piece makes you curious about a corner we skipped, the screen already has an opinion on it.

• And the Story × Chart map plots the whole universe on two axes at once, which is the fastest way we know to see where a sector actually sits — top right is where we hunt, bottom right is where the tape has not yet agreed, and the precious-metals cluster has spent six months migrating between the two.

It updates monthly, and the next update lands with last week’s move in it. screening.arvy.ch — it is the concrete thing behind everything we write, and paid subscribers have it.

Now the objection you should be forming, if you have read this far without raising it.

Everything above is a multiple. Two prior cycles ran 7.6 and 8.2 times their lows, so this one does too — and stated like that, it is pattern-matching rather than analysis. Patterns repeat when something underneath them causes the repetition, and stop repeating when it does not. If we cannot tell you the mechanism, the $8,000 is a horoscope with a decimal point.

We can tell you the mechanism, and it is the most important thing in this article.

Below the line: why gold stopped obeying real interest rates in 2022, which buyer replaced the one that used to set the price, and why that changes what a cycle multiple is worth as a guide. Then the strongest argument against everything we have just written — the one number the bears have that genuinely troubles us. Then what Mark Newton of Fundstrat published this week, which says this bounce fails and the lows get revisited into late August, and how we hold his view and ours at the same time without contradicting ourselves.

But Why Should a Multiple Repeat at All?

This is the right objection, and we would rather you raised it than nodded along. On its own, «the last two cycles went 7.6 and 8.2 times, so this one will too» is pattern-matching. Patterns repeat when there is a mechanism underneath them and stop repeating when there is not. So here is the mechanism, and it is the most important section in this article.

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Chinese AI now sells intelligence for cents on the dollar, and the market is asking whether America’s 700-billion-dollar capex bet will ever pay off. This is a piece about why that fear is justified – and why it is bearish for the wrong companies. It is not a story about the end of AI. It is a story about who pays for it. And who gets paid.

«A durable competitive advantage has proven elusive since the days of the Wright brothers.»
_{Warren Buffett, Berkshire Hathaway shareholder letter (2007)}

Article originally published here on NZZ The Market (Guest Author).

It’s 2007.

Warren Buffett sits down to write his annual letter and reaches for his favourite punching bag: the airline industry. A far-sighted capitalist present at Kitty Hawk, he jokes, would have done investors a lasting favour by shooting Orville down.

Think about that. Commercial aviation — one of the great growth industries of the twentieth century, the technology that shrank the planet — and the world’s most famous investor wishes it had been strangled at birth. Not because the planes didn’t fly. Because the shareholders never did.

Hold that thought.

Fast forward to last week. Mr. Market is in a foul mood. The Nasdaq corrects sharply, momentum darlings are taken behind the woodshed, and the headlines quickly find their culprit: China. More precisely, Chinese AI models that deliver nearly the same performance as their American rivals — for a fraction of the price.

The fear is real. And my take may surprise you: the fear is justified. But it is bearish for the wrong companies, and bullish for almost everyone else.

Welcome to the world of AI-rlines.

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The Greatest Arms Race in Business History

To see why, follow the money. All 700 billion dollars of it.

Microsoft, Alphabet, Amazon and Meta have guided towards combined capital expenditures of some 700 billion dollars for 2026. For perspective: that is roughly two thirds of Switzerland’s entire annual GDP — spent in a single year, mostly on chips, data centres and electricity.

The cost blocks are staggering. Tens of thousands of latest-generation Nvidia GPUs, with single clusters running into the billions. AI researchers commanding salaries that would fund entire engineering departments elsewhere. Licensed training data that gets more expensive by the quarter. And energy — above all, energy: the US and China alone are expected to drive close to 80% of the growth in global data-centre electricity consumption through 2030, heading towards 1,000 terawatt-hours. That is in the neighbourhood of Japan’s entire annual power use. For server farms.

Chart 1: Hyperscaler capex is surging while free cash flow is plummeting — the scissors every quality investor dreads.

Source: BCA Research, Bloomberg

Chart 2: The US and China are set to drive nearly 80% of global data-centre electricity growth through 2030.

Source: Nature

High fixed costs demand high prices. Whoever spends hundreds of billions must charge accordingly per token to ever earn a decent return.

Which is precisely where the problem begins.

Cents on the Dollar. Literally.

Across the Pacific, a price war is raging. Baidu, Alibaba, Tencent, ByteDance and DeepSeek are undercutting each other relentlessly — solid models are sometimes given away for free to win market share. Add open-source models as a construction kit, subsidised energy, cheaper engineering talent and a fast-maturing domestic chip ecosystem around Huawei, and you get a radically different cost base.

How different?

The most capable American frontier models charge 25 to 50 dollars per million output tokens. DeepSeek’s V4 Flash charges 28 cents.

That is not a discount. That is a different business model.

Chart 3: Intelligence for cents on the dollar — Chinese models undercut US frontier pricing by up to two orders of magnitude.

Source: intelligentliving.co

This is where the «good enough» threshold enters. If a model delivers 90% of the performance for 1% of the price, the rational CFO chooses the cheap option for customer service, standard code and routine analysis. Intelligence becomes a commodity — like electricity, like bandwidth, like a seat from Zurich to London.

And when the foundation becomes a commodity, the competitive edge migrates from building the model to applying it. In application — products, workflows, ecosystems — America has always been strongest. That is why the world got Amazon, the iPhone and Microsoft Office. But note carefully: that strength belongs to the users of intelligence. Not necessarily to its producers.

Which is where our quality lens starts flashing red.

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Free Cash Flow: The Mother of All Red Flags

At arvy, two numbers sit above everything else: free cash flow and return on invested capital. Both are currently telling the same uncomfortable story about the hyperscalers. Cash conversion is sinking while the capital base explodes. Even with revenues growing, ROIC is almost arithmetically condemned to fall before it can ever rise again.

Chart 4: A dangerous divergence — projected hyperscaler free cash flow collapses while the S&P 500 trades near record highs.

Source: Bloomberg

It gets worse. Bank of America now expects aggregate hyperscaler free cash flow to shrink from 191 billion dollars in 2025 to a mere 19 billion in 2026 — and to turn negative in 2027.

Read that again. Some of the most profitable business models ever devised, collectively burning cash.

Chart 5: Hyperscaler free cash flow is forecast to turn negative in 2027 — from 191 billion dollars to below zero in two years.

Source: BofA Global Investment Strategy, Bloomberg

It’s 2022.

Meta is pouring billions into the metaverse. Free cash flow collapses — and the stock loses roughly three quarters of its value, peak to trough. The business is intact. The users are still there. But Mr. Market has stopped believing that the spending will ever return a dollar. Only when Mark Zuckerberg declares the «Year of Efficiency» and capital discipline returns does the stock stage one of the great comebacks in market history.

The lesson: the market punishes capex without visible returns brutally — and rewards discipline practically overnight.

«Then they should simply spend less», you might object. Of course they could. But at what price? Whoever taps the brakes first risks losing touch with the frontier — and the market would stamp «loser of the race of the century» on the stock, complete with a hefty valuation discount. Whoever keeps spending loses margin. A prisoner’s dilemma, played out with the largest balance sheets on earth.

This, quite honestly, is the part that keeps me up at night. Not for the economy. For the valuations.

Monopoly Erosion: Everyone Hunting the Same Dollar

There is a second, underappreciated dimension. For decades, the tech giants were de-facto monopolists — but each in its own territory.

Google owned search. Meta owned social media. Microsoft owned enterprise software. Amazon owned e-commerce.

Four quasi-monopolies. Four separate hunting grounds. Four beautiful moats.

And today?

They are all building the same product — intelligence — selling it to the same customer, and increasingly monetising it through the same sources: advertising and subscriptions. Four monopolies are merging into one oligopoly locked in a price war.

Buying the hyperscalers therefore no longer means owning four independent money machines. It means betting four times on the same AI-and-advertising dollar. Monopoly erosion, I call it. Combine it with record capex and Chinese price pressure, and you have a demanding cocktail for stocks trading at premium multiples.

History has seen this constellation before.

It even had wings.

AI-rlines: The Greatest Growth Story Nobody Made Money On

Commercial aviation was one of the great growth markets of the twentieth century — and it still grows today. Industry revenues of roughly 650 billion dollars are projected to nearly double to 1.2 trillion by 2033. Passenger numbers multiplied over decades, the world grew closer, tourism and trade exploded. The demand story was, and remains, close to perfect.

Chart 6: A near-perfect demand story — the airline market is projected to almost double to 1.2 trillion dollars by 2033. Shareholders barely noticed.

Source: market.us

And yet, over its entire history, the industry has cumulatively earned next to nothing for its owners. Which brings us back to Buffett and Kitty Hawk.

Aviation is no outlier.

As Edward Chancellor — the historian who has studied speculative manias like no one else — argued just days ago in a remarkable interview with The Market, the great speculative bubbles — from the railways of the 19th century to the automobile and electrification boom of the 1920s to the technology bubble of the late 1990s — were all investment booms followed by a bust. And an investment boom, he reminds us, is itself a symptom of a fiercely competitive environment: when enormous sums flow into a new technology, they attract crowds of competitors. Sooner or later, a brutal shakeout follows.

His verdict on the product itself could have come straight from this piece: large language models, Chancellor argues, are turning into a commodity — and commodity prices gravitate towards marginal cost, which contains no adequate return on invested capital. Schumpeter said it a century ago: in a hypercompetitive environment, competition grinds profits towards zero. The railways carried the freight. The fibre optics carried the internet. The shareholders carried the losses.

Why did the perfect growth story ruin its investors?

The ingredient list reads suspiciously familiar. Enormous capex — fleets then, GPUs and data centres now. A product that became a commodity — a seat is a seat, a token is a token. Merciless price competition — low-cost carriers then, Chinese labs and open source now. Regulation and geopolitics as permanent co-pilots.

Who profited?

Everyone else.

Passengers, whose real ticket prices collapsed. The economy, which could build on global supply chains. And — often forgotten — the suppliers. Engine makers earn on every flight hour, no matter which airline goes bankrupt next.

It is no accident that we prefer owning GE Aerospace and Safran to owning any airline. Safran needs planes to keep flying — a low bar. An airline needs fuel prices, labour unions, weather, regulators and competitors to cooperate simultaneously — a very high bar. Heavy Assets, Low Obsolescence. HALO, as regular readers know.

Transfer the analogy: the model providers are becoming airlines. They fly intelligence instead of passengers, deliver spectacular revenue growth — and fight a structural battle for their margins. They will not disappear, just as airlines never disappeared. But between «indispensable to the economy» and «attractive to shareholders» lies, as ever, an ocean.

Preferably crossed at 36,000 feet.

The S&P 500: An AI Index in Disguise

Why should this concern you even if you own no hyperscaler directly? Because the index long ago stopped being one. Semiconductors alone account for roughly 20% of the S&P 500. Add the other fifty-odd names with direct AI exposure — hyperscalers, software, energy and infrastructure plays — and well over half of the index is riding a single thesis.

The S&P 500 has become an AI index in disguise.

This is not a critique of passive investing — ETFs remain a wonderful instrument. But you should know what you own: whoever buys «the market» today buys a concentrated bet on the return on AI capex. With one foreseeable side effect: index volatility will rise structurally. Every twitch in the AI story — a price shock from China, a disappointing capex guidance — feeds straight through to the headline barometer.

The recent momentum washout was a foretaste. Goldman Sachs’ high-beta momentum basket surrendered a third of its value in under a month. Momentum, as always, is a double-edged sword: what can rise 1,000% can also fall 50%.

Chart 7: A double-edged sword — the high-beta momentum basket surrendered a third of its value in under a month.

Source: Goldman Sachs FICC & Equities, Bloomberg

And yet, beneath the surface, something remarkable is happening.

The Breadth Awakens

Here is the good news — and it is considerably bigger than the bad. When intelligence becomes cheap and ubiquitous, nearly every other company wins. The insurer automating claims. The industrial group making maintenance predictive. The healthcare company accelerating development. They all buy intelligence without carrying the capex — like business travellers who profited from the airlines’ price wars without ever owning a plane.

The market has started to trade exactly that. The advance-decline line — the blood pressure monitor of market breadth — just hit a new all-time high. More and more stocks are rising while the old locomotives consolidate.

Chart 8: The NYSE advance-decline line hits a new all-time high — participation is broadening, not narrowing.

Source: TrendLabs, StockCharts.com

Chart 9: An intact uptrend in breadth — the advance-decline line has been climbing since 2023 and is accelerating.

Source: StockCharts.com

Even the long-suffering small caps are stirring: the Russell 2000 has just broken its multi-year downtrend against the Magnificent 7. After years in which Big Tech and friends supplied all of the performance, the rest of the market is waking up.

Chart 10: Regime change in the making — the Russell 2000 breaks its multi-year downtrend versus the Magnificent 7.

Source: Adaptiv Investment Management System

For active investors, this is the real punchline. When more than half of the index hangs on a single thesis, Active Share stops being a buzzword and becomes a tool. A stock picker’s market is beginning — one that favours companies that consume cheap intelligence over companies that must produce expensive intelligence. As I wrote in «Software’s Good Story — and Why It’s Not Good Enough», we prefer businesses where the bar is low: quality with real free cash flow, high ROIC, and moats no API key can replicate. Geography, regulation, physics. Good Story, Good Chart — you know the recipe.

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The Passenger Wins

Let me give the bulls their strongest argument, because it is a good one, and a piece that ignores it is propaganda, not analysis. At the frontier — scientific research, complex agents, strategic planning — a premium will continue to be paid, and there America leads. Switching costs and data sovereignty are real barriers; critical Western infrastructure will hardly ever run on Chinese models. The market stays bifurcated, and the hyperscalers own ecosystems that took decades to build.

All true. And I agree with most of it.

But notice what it defends: the businesses, not the economics. Airlines had loyalty programmes, hub monopolies and bilateral route protections too. It protected the companies. It never protected the returns.

The big picture seems clear to me. Cheap, ubiquitous intelligence is one of the most bullish developments for the world economy since the internet itself — just not necessarily for those producing it at record capex. Aviation changed the world and impoverished its shareholders. AI will change the world too. Who gets rich along the way will be decided not in the data centre, but in the application.

Buffett wished someone had shot down the Wright brothers. Nobody will shoot down AI — nor should they. The planes will fly. The tokens will flow. The economy will soar.

Just remember, when you board, who historically made money in this business. It was never the airline. It was the passenger. And the engine maker.

«Your margin is my opportunity», Jeff Bezos famously said. The phrase Amazon once used to raid entire industries is now pointed at the hyperscalers themselves. This time, China is doing the talking.

And you, dear passenger, are applauding.

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Best regards

Thierry and team arvy

Legal Notice: At the time of publication of this article, the companies mentioned may or may not be portfolio holdings of arvy. Such securities may or may not be included in the portfolio at any point in the future. This document has been prepared solely for informational and marketing purposes and does not constitute an invitation, offer, or recommendation to acquire or sell any financial instruments or to engage in any other transactions. The relevant prospectus and key investor information documents (e.g. PRIIPs KID / Key Information Document) are available free of charge from arvy AG.

Not metaphorically — seasonally.

The market sits near record highs, the VIX just jumped off its summer lows, and the calendar is walking straight into the choppiest, most accident-prone stretch of the entire four-year cycle.

Over the next three months I expect real turbulence — the kind that spikes the fear gauge, floods your feed with apocalypse threads, and makes serious people question whether the bull market is over. And I am writing this essay now, calmly, at a VIX of 18, to tell you in advance: buy the dip. Especially the one nobody will want.

Seven forces are converging on the window between now and October.

A brand-new, untested Fed chair. A mid-term drawdown pattern that has not skipped a single turn since 1974. The weakest seasonal window of the presidential cycle. The VIX’s own calendar. The largest IPO supply in history draining liquidity. A market with no cash and no hedges left. And a global liquidity wave that is cresting. Any one of them, alone, is a curiosity. All seven pointing at the same few weeks is a map — mosaic theory doing exactly what it is supposed to do. The seven sections that follow take them one at a time.

When I sketched parts of this setup on X, the posts gathered hundreds of thousands of views within days — not, I think, because the statistics are exotic, but because the picture is unusually clean, and unusually uncomfortable.

One caveat before we start, and I mean it: this is a map, not a prophecy. Maps can be wrong, and I will tell you further down precisely what would make me tear this one up. But you navigate better with a map than without one.

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I. Twelve chairs, twelve drawdowns

On June 17, Kevin Warsh sat down for his first press conference as the 17th chair of the Federal Reserve and delivered a message markets had not heard in years. The committee held rates at 3.50–3.75%, unanimously. The statement dropped its easing lean. The dot plot tilted toward hikes. And Warsh himself declined to submit a dot at all — a small procedural detail that told you everything about how he intends to run the institution: less guidance, less hand-holding, more discipline. On inflation, he pointedly described the commitment to price stability as a message the Fed had «missed for five years».

The market has now heard him exactly once. It still does not know his reaction function. It does not know his tolerance for pain. It does not know whether the famous Fed put — the assumption, drilled into an entire generation of investors, that the central bank will always ride to the rescue of falling asset prices — still exists under new management. And it will start finding out at the worst possible moment: his second meeting lands on July 29. Because across nine decades, every new Fed chair has been greeted the same way: with an equity drawdown in his or her first three months in office.

• Powell −7%

• Yellen −4%

• Bernanke −2%

• Greenspan −33%

• Volcker −10%

• Miller −3%

• Burns −7%

• Martin −8%

• McCabe −4%

• Eccles −8%

• Black −21%

• Meyer −32%

Twelve new chairs, twelve drawdowns, an average of roughly −12%. Not one got a free pass.

Chart 1 — The market always tests the new chair

S&P 500 drawdown in the first three months of each new Fed chair · Barclays, Bloomberg

Why does this keep happening?

Because a central bank chair is not priced as a person. He is priced as a probability distribution. After years under one chair, markets have learned the reaction function in their bones — how much equity pain triggers a soothing speech, how much credit stress triggers a cut, where exactly the put is struck. A new chair resets that distribution to «unknown». And markets deal with unknowns the only way they know how: they probe. They sell into the uncertainty until the new chair is forced to reveal himself. The test is not a superstition. It is price discovery applied to a human being.

The two worst cases in the sample are the ones that should make you sit up straight. Alan Greenspan inherited the market in August 1987; two months later came Black Monday, still the largest one-day crash in history. Eugene Meyer took over in September 1930, straight into the teeth of the Great Depression. I will come back to those two, because they are the honest counterargument to everything that follows. But first, note the more recent and more instructive case: Jerome Powell.

Powell took the chair in February 2018. Within days, the «Volmageddon» spike hit and the S&P 500 dropped 10%. The market spent the rest of the year probing him — and in the fourth quarter, after his infamous remark that rates were «a long way from neutral», it pushed the index down 20% into Christmas Eve. Then Powell blinked, pivoted, and 2019 delivered one of the great melt-up years of the modern era. Keep that sequence in mind: new chair, mid-term year, autumn washout, capitulation low, policy response, melt-up. It is not a random anecdote. It is the template — and 2018 was the last time the two cycles we are discussing overlapped.

Warsh was sworn in on May 22. His three-month window runs into late August. So far the tape has been polite about it: the S&P 500 sits around 7,500, within reach of its highs, and the VIX spent early July dozing in the mid-teens before jumping above 18 on Friday. Polite is not the same as finished. The historical test rarely happens at the swearing-in ceremony. It happens when policy and calendar collide. Which brings us to the calendar.

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II. The mid-term map

2026 is a mid-term year.

And mid-term years have a script so consistent it borders on the mechanical: the market sells off into the weakest stretch of the four-year presidential cycle, bottoms in the back half of the year, and then it runs. Before the mechanics, look at the raw record — the maximum drawdown in every mid-term year going back to Ford:

• 1974 — Ford: −35%

• 1978 — Carter: −15%

• 1982 — Reagan: −17%

• 1986 — Reagan: −10%

• 1990 — Bush I: −20%

• 1994 — Clinton: −8%

• 1998 — Clinton: −22%

• 2002 — Bush II: −34%

• 2006 — Bush II: −8%

• 2010 — Obama: −17%

• 2014 — Obama: −10%

• 2018 — Trump: −20%

• 2022 — Biden: −27%

Ten mid-term years. Ten meaningful drawdowns. Not one skipped its turn. The mildest was 1994’s −8% — a year the Fed hiked seven times. The average sits around −21%, which is to say: a bear-market-sized scare, arriving on schedule, in the second year of every presidency for half a century, under Republicans and Democrats, in inflations and disinflations, in secular bulls and secular bears alike.

Chart 2 — Same year, same script: every mid-term drawdown on one map, Ford to Biden

GMCP · S&P 500 with mid-term election year drawdowns marked

Why should the political calendar bully the most liquid market on Earth this reliably?

Three reasons, and none of them is mystical.

First, administrations front-load the pain: unpopular measures — tax changes, tariffs, spending cuts, regulatory offensives — get pushed into the first two years, so the medicine is swallowed long before the next presidential race. The second year is when that medicine hits the economy.

Second, policy uncertainty peaks into the election itself: markets hate not knowing who will control Congress, and they price that ignorance with a discount.

Third, and most powerfully, the resolution is itself the catalyst: once the election passes — whatever the outcome — uncertainty collapses, gridlock or stimulus gets priced, and the third year of the cycle, historically the strongest of all four, takes over.

The shape of the mid-term year reflects exactly that logic. Decent first quarter, deteriorating summer, a low in the back half — often the third quarter, sometimes stretching to the days around the election itself — and then lift-off. J.P. Morgan’s composite of every mid-term year since 1946 shows the April-to-September stretch as the dead zone: the average mid-term year goes essentially nowhere for six months while the average non-election year climbs steadily. The gap closes violently in the final quarter.

Chart 3 — The mid-term script: weak summer, back-half low, year-end lift-off

Average S&P 500 path, mid-term vs. non-election years since 1946 · J.P. Morgan

Now place 2026 on that template.

We are in July.

The weakest window is directly ahead. Inflation is running above 4% again after the spring oil shock, which means the Fed cannot simply promise rescue. Washington is heading into an election that will decide whether the current administration keeps Congress. And the man whose job it is to steady the ship has been in the role for eight weeks. The script does not need to repeat exactly. It only needs to rhyme — and the stage is set precisely as it was set in 1974, 1982, 1990, 1998, 2010, 2018 and 2022.

III. Even fear has a calendar

Here is the part most investors never look at: volatility itself is seasonal.

The VIX does not drift randomly through the year — it has a shape, and the shape is remarkably stable. It troughs in early-to-mid summer, when volumes thin out and volatility sellers harvest their carry in peace. It climbs through August, as hedgers return from the beach and start paying up for autumn protection. And it peaks in September and October — the months that host more accidents, more earnings resets and more macro surprises than any other stretch of the calendar. Two decades of data say the autumn volatility premium is not folklore. It is one of the most persistent seasonal patterns in all of finance.

And in mid-term years, that autumn peak is meaningfully higher than in ordinary years. Everything from Section II — the front-loaded pain, the election uncertainty, the policy vacuum — expresses itself in the options market as a fear premium that builds through Q3 and crests just before the vote. Fear, quite literally, is on the calendar.

Chart 4 — The VIX has a season: 2026 so far, the projected seasonal path, and the 20-year pattern

$VIX daily 2026 with seasonal projection and 20-year VIX seasonality, EquityClock

Look at where we stand against that shape.

The VIX printed the mid-teens in early July — the seasonal trough, on cue. On Friday it jumped above 18. The seasonal path from here points higher into September and October, and in mid-term years the historical crest reaches toward the high-20s and beyond. In other words: the market has started paying attention, but it has not yet paid the full toll. That gap between a high-teens VIX today and a potential high-20s VIX in October is, in one number, the caution half of this essay. I do not know which headline gets the blame — the Warsh Fed, the election, an earnings warning, a geopolitical flare.

Nobody knows the day. But I know the season.

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IV. The washout we actually want

Why would a long-term bull welcome that?

Because this market has collected fluff, and fluff must leave before the next leg can carry real weight. Bull markets do not die of drawdowns. They die of exhaustion — when every buyer is already in, every skeptic has capitulated into the top, and there is nobody left to sell to. The periodic washout is what prevents that terminal state. It flushes the leverage, resets the sentiment, transfers shares from weak hands to strong ones, and rebuilds the wall of worry that every durable advance must climb. Seen that way, the mid-term correction is not a bug in the four-year cycle. It is the four-year cycle’s maintenance schedule.

And rarely has a market been more obviously due for maintenance. Consider what is being thrown at it right now, starting with supply. In June, SpaceX priced the largest IPO in history, raising roughly $75 billion in one gulp — more than double the previous record. Cerebras opened 89% above its IPO price in May. OpenAI filed its confidential S-1 in June and is aiming for an autumn listing; Anthropic has filed confidentially as well, with an October window in play. Strategists have pencilled in a record year for U.S. IPO proceeds. Every one of those dollars has to come from somewhere — and where it comes from is the existing market. Portfolio managers sell what they own to buy what is new. Index funds sell the old constituents to make room for the giants. Insiders and early investors queue up behind lockups that expire into 2027. Record IPO supply is a liquidity drain wearing a party hat.

Now look at the demand side of the ledger — the sentiment picture — and it gets more striking still. Retail investors’ cash allocation, smoothed over ten months, has fallen to the extreme low levels that have appeared only a handful of times in almost four decades of AAII data: 1998, 2000, 2018, 2021 — and now. Each of those prior readings marked a market running on full commitment, with no cash cushion left to absorb a shock or to buy one. Cash on the sidelines is fuel. There is very little fuel left in the retail tank.

Chart 5 — No cash left: retail cash allocations at extreme lows seen only near prior euphoria peaks

S&P 500 vs. retail investors’ cash allocation, 10-month moving average · i3 Invest, AAII data

The options market tells the same story from a different angle. The average single-stock put/call skew — the premium investors pay for downside protection relative to upside speculation — has collapsed to a record low. Translated from Greek: nobody is hedging, and everybody is reaching for calls. When skew is high, fear is priced and surprises tend to be benign. When skew sits at all-time lows, the crowd has collectively decided that nothing can go wrong — which is precisely the condition under which something usually does. This is what «everyone is now a bull» looks like on a Bloomberg screen.

Chart 6 — Nobody is hedging: single-stock put/call skew at record lows

S&P 500 average single-stock 1-month normalized put/call skew, 2016–2026 · GMCP

Add the backdrop we have documented before — margin debt growth back in its historical danger zone, leveraged-ETF assets crowded into a single theme — covered in detail in The Chart That Keeps Me Awake at Night — and the mixture becomes combustible: maximum commitment on the surface, tightening liquidity beneath it, a hawkish and untested Fed on top. That is not a prediction of a crash. It is an observation that the market has used up its shock absorbers exactly as it enters the season of shocks.

So, what does a proper washout look like, concretely?

The VIX spikes into the high-20s or beyond. The put/call skew normalizes violently as everyone hedges at once — at the worst prices. Margin balances contract. The AI-IPO aftermarket goes cold and a deal or two gets pulled. Retail cash allocations tick up as the latecomers swear off stocks «for good». The taxi driver stops talking about pre-IPO allocations. None of that is pleasant to live through. All of it is exactly what the doctor orders — because it is the process by which fluff, FOMO and hot air leave the market, and the next leg gets a foundation it can actually stand on. The window for that process, per everything above, runs from now into October — with the potential for real fireworks around November 3.

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V. The flip: ten lows, ten launchpads

And here is the part that flips the whole thing. Every single one of those ten mid-term drawdowns was a buying opportunity.

Not most of them.

All of them.

Since 1934, the average rally off the mid-term low has been roughly 47%. The market took out its prior high four times out of five. Run through the recent cases and feel the pattern rather than just reading it. The 1990 low printed in October, into the Gulf War panic; 1991 was a great year. The 1998 low printed in October, into the LTCM liquidation; what followed was the most explosive stretch of that entire bull market. The 2010 low came in the summer flash-crash gloom; QE2 lifted the market 30% off it within months. The 2018 low landed on Christmas Eve after Powell’s hawkish stumble; 2019 returned over 30%. The 2022 low hit in mid-October with inflation at forty-year highs and sentiment at generational lows; the bull market we are still living in was born that week. Different decades, different crises, different Feds — same anatomy. The fear clusters into the back half of the mid-term year, the low prints, and the third year of the presidential cycle — historically the strongest of the four — does the rest.

Why does the third year work so reliably?

Because everything that suppressed the second year reverses at once. The election passes and uncertainty collapses. The administration pivots from administering pain to seeking re-election, which means stimulus, deregulation and friendly headlines. And the Fed — whoever chairs it — tends to find its accommodative side once the washout has done the tightening for it. The mid-term low is where maximum uncertainty meets maximum pessimism meets minimum positioning. That is what a launchpad is made of.

So read the 2026 setup again, with fresh eyes.

A new, untested Fed chair. The weakest seasonality of the cycle. Record IPO supply draining liquidity. Retail fully invested with no hedges on. If those forces all hit at once this autumn, they do not make the bottom less likely. They make it deeper. And the rebound bigger. The crowd will be selling the Warsh uncertainty into September and October. History says that is usually the moment to be buying.

The fear is not a flaw in this setup.

The fear is the feature.

VI. The 1998 rhyme

Long-time readers know I keep one analogue taped above my desk: 1998. I built the full case in The Semiconductor Climax Run, the final part of our semiconductor trilogy, so here I will give you the condensed version — and the chart that keeps the thesis honest.

1998 was a mid-term year in the middle of a raging secular bull market built on a genuine technological revolution. The internet was real, the earnings were arriving, and the crowd knew it. Then the world intervened: Asia had cracked in 1997, Russia defaulted in August 1998, and the collapse of Long-Term Capital Management in September threatened to seize the entire financial system. The S&P 500 fell 22% between July and October. The Nasdaq fell harder. Sentiment did not merely cool — it capitulated. Serious people wrote serious essays about the end of the bull market.

Then the Greenspan Fed cut rates three times in seven weeks — September, October, November — and the fear that had built all autumn converted into fuel. The index took out its high within months. And what followed was not a resumption of the old trend but its final, vertical act: the 1999–2000 melt-up, led by technology, in which the Nasdaq gained 86% in a single year and the gains got silly before they got dangerous. Everyone who sold the October 1998 panic sold the exact bottom of the greatest final act in market history. The lesson is not that panics are safe. The lesson is that inside a secular bull with a real story, the mid-term washout is the reload, not the top.

Is the analogy just a nostalgic overlay?

Judge for yourself.

The chart below maps the Nasdaq Composite of 2022–2026 against the Nasdaq of 1994–1998. The two paths track each other with a closeness that quantitative analog-matching flags as unusual — same bear-market starting point, same two-year advance, same mid-cycle wobbles. If the rhyme holds, the template projects a low in the second half of 2026 — our washout window — followed by the final blow-off into 2028. I hold that projection loosely; analog charts are maps of possibility, not train timetables, and they have broken before. But when an independent price analog lands its projected low in exactly the window that the Fed-chair cycle, the mid-term cycle and the volatility calendar all point to, a disciplined investor is allowed to raise an eyebrow.

Chart 7 — The 1998 rhyme: Nasdaq 2022–2026 vs. 1994–1998, with the H2 2026 low projection and the final act into 2028

Nasdaq Composite price analog, 2022–2026 vs. 1994–1998 · Ned Davis Research

And the leadership confirms the casting. The semiconductors are this cycle’s internet — the toll collectors of the AI buildout, and the group whose chart defines the cycle’s temperature. As we showed in the trilogy, the semiconductor index has now steepened its advance twice: from the steady post-2019 trendline, to a faster one off the 2025 low, to the near-vertical ascent of recent months, on expanding volume. That is textbook climax-run behaviour — stage three of a parabola that historically ends vertically, not sideways. Steep, however, is not the same as terminal. In the 1998 template, this degree of steepness corresponded to the pre-washout phase — the last shakeout before the true vertical stretch of 1999. The parabola is the reason to keep the sell tripwires armed. It is not yet the reason to leave.

Chart 8 — The semis parabola: two steepenings done, the vertical stage still ahead — this is where 1998 shook the tree

arvy · iShares PHLX Semiconductor ETF (SOXX), weekly, with successive trend steepenings · TradingView

My working assumption, then, is that we are living through the same movie at a different speed. The AI capex boom is this cycle’s internet buildout — with the difference that today’s leaders earn real cash flows at scale. A 2026 mid-term washout would map onto the 1998 scare. What follows would map onto 1999: the climax run into the 2028s, where the crowd finally goes all-in, the gains accelerate, and the discipline to leave becomes the hardest and most valuable skill in the market. Caution into October. Accumulation through the fear. Full exposure for the final act.

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VII. The tide beneath it all

One more transparency on the map, and it is the one that disciplines all the others: global liquidity. Equity bull markets do not die of old age, and they do not die of high valuations. They die when the liquidity tide goes out.

So, the honest question is: where in the liquidity cycle are we?

Michael Howell’s Global Liquidity Index, which tracks the ebb and flow of funding across the advanced economies, has followed a remarkably regular rhythm of roughly 65 months from peak to peak for six decades. And his reading of the current cycle is uncomfortable for the permabulls: the wave is cresting. The liquidity impulse that lifted everything off the 2022–2023 trough is topping out here, in 2026, right on cycle schedule.

Chart 9 — The liquidity wave is cresting — which is the setup for the policy response, not the obituary

Global Liquidity Cycle, advanced economies, with 65-month wave · Michael Howell, CrossBorder Capital (GLI)

Read carefully, because this chart is doing two jobs in this essay. The first job is confirmation: a cresting liquidity impulse is precisely the environment in which markets lose their shock absorbers — which is why the washout thesis of Sections I through IV is not just calendar numerology. The turbulence has a macro engine. When liquidity stops accelerating, the most speculative assets stumble first, volatility wakes up, and the market becomes vulnerable to exactly the kind of seasonal, political and personnel shocks that 2026 has queued up.

The second job is the more important one: the cresting wave is also the mechanism that produces the final act. Follow the sequence. The washout arrives. Markets fall hard enough to threaten something that matters — credit, collateral, a systemically visible fund, the IPO pipeline itself. And then the system responds, because it has no choice: the developed world is carrying debt loads that must be refinanced continuously, and no central bank — however hawkish its new chair talks in July — can allow a funding crisis while trillions in government paper roll over. That is precisely what happened in October 1998: the LTCM washout forced Greenspan’s hand, three rate cuts followed, and the liquidity that was summoned to prevent a crisis flowed straight into the melt-up instead. The washout is not the alternative to the final act. The washout is what triggers it. If the autumn delivers the scare this map describes, the odds are high that it also delivers the birth of the Warsh put — and with it, the fuel for 2027.

And the far side of the wave tells you how the story eventually ends: with the liquidity cycle scheduled to trough toward the end of the decade, the melt-up this map projects into the 2028s would be running on borrowed tide. That is a subject for its own essay — one we will publish soon on the regime change beneath the surface of these markets — and it is why everything in this piece comes with an expiry date. We are bulls with a calendar, not bulls with a religion.

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What would prove me wrong

A map you cannot invalidate is astrology. So before the playbook, the steelman — stated as strongly as I can state it.

Twice in the twelve-chair sample, the new-chair drawdown was not a dip. It was a trapdoor. Greenspan’s welcome present was the crash of 1987. Meyer’s was the Great Depression. Both men inherited markets that were extended, beloved and structurally fragile — which is not a comfortable sentence to type in 2026, with retail fully invested, skew at record lows and the liquidity wave cresting. The averages in this essay contain their outliers, and averages are what you drown in if the water is six feet deep on average. If Warsh mishandles the July or September meetings while inflation sits above 4% — if he proves his hawkish credibility at exactly the moment the market needs the opposite — a seasonal scare can compound into a policy accident. 1987 was, at its core, a new chair misjudging how much tightening an overheated market could bear.

There is a second honest objection: the sample sizes.

Twelve chairs is not a statistical universe. Ten mid-term years since Ford is not either. Any one of these patterns, alone, could be noise wearing a suit. I hold them together not because each is bulletproof but because they are independent of each other — personnel cycle, political cycle, volatility seasonality, liquidity cycle, positioning — and they all point at the same window. That is mosaic logic, and mosaic logic has served us well. But it is probabilistic, not certain, and anyone who tells you otherwise is selling something.

So here are the tripwires — the specific observations that would tell me the map is wrong, in print, as they happen:

• Liquidity breaks instead of bending. If the global liquidity impulse rolls over sharply and the policy response fails to arrive — no cuts, no facilities, no balance-sheet support into a deepening drawdown — then the 1998 template is void and the 1930 template is on the table.

• Credit confirms the fear. A mid-term correction with calm credit spreads is seasonal. One with blowing-out high-yield spreads and funding stress is systemic. We will be watching spreads, not headlines.

• The low does not hold. If a Q3/Q4 low is decisively taken out on the recovery attempt — lower low, failed retest, distribution on volume — the launchpad thesis is broken and I will say so.

• Earnings crack. The washout thesis assumes profits keep growing while multiples get scared. If forward estimates roll over broadly — not one sector resetting, but the tide going out on the aggregate — the correction has fundamental fuel and the playbook changes.

Four tripwires, all observable, none of them hindsight. If none of them fires, the dips are for buying. If they fire, you will read about it here first — honest revision is part of how we write.

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The playbook

What does one actually do with this map? Three things, and none of them is heroic.

First: hold your quality. The temptation, having read four thousand words about an autumn washout, is to sell everything and wait in cash for the low. Resist it. The pattern is reliable in shape but not in schedule — some mid-term lows came early, some shallow, some in pieces — and selling everything obliges you to make two perfect decisions, the exit and the re-entry, against a market that took out its prior high four times out of five within the following year. Round-tripping great businesses to feel clever in October is how you miss 2027. We are not selling compounders to sidestep a drawdown we cannot time. We would rather be approximately invested than precisely absent.

Second: keep dry powder, and attach a shopping list to it. Dry powder without a list is just anxiety with a cash yield. Decide today — calmly, at a VIX of 18 — which businesses you want to own cheaper and at what prices, so that when the VIX is at 28 and X is wall-to-wall crash memes, you are executing a plan instead of forming one. The moment of maximum fear is the worst possible moment to start your research and the best possible moment to finish it. This is precisely what our screening platform at screening.arvy.ch is built for: 800+ quality compounders, scored on the same «Good Story & Good Chart» framework we use for our own portfolio, so that when the fear arrives you are choosing from a pre-filtered list instead of a burning casino.

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Third: buy the fear in tranches. Nobody rings a bell at the low — mid-term bottoms are only ever obvious in hindsight, and several of the great ones printed on days when buying felt physically unpleasant. Probing positions on the way down, added to as the tripwires stay silent, beat one heroic all-in order that never gets filled. The math of the last ninety years says the reward for tolerating that discomfort has averaged 47% off the low. Buy the dip nobody wants. Especially the Q3 one.

The signal: when the cannons fire

If you keep only one chart from this essay, keep this one. It compresses everything above into a single exhibit: sixteen years of the S&P 500, with every major VIX spike marked. The 2010 flash crash. The 2011 debt-ceiling standoff. The 2015 yuan devaluation scare. Volmageddon and the Christmas Eve massacre of 2018. The Covid crash of 2020. The yen-carry unwind of 2024. Every single one of those spikes had serious people calling the apocalypse in real time. And every single one turned out to be the market loading up for the next leg higher.

The most reliable buy signal in market history is embarrassingly simple: wait for everyone to panic.

Then buy.

Chart 10 — Every panic was a reload: sixteen years of VIX spikes inside a secular bull

arvy · SPY weekly (log scale) with VIX, major volatility spikes marked · TrendSpider

So here is the ladder we will be climbing this autumn, calibrated to the fear gauge itself:

• VIX 20–30 — stay alert. The correction is underway. This is research season: finalize the shopping list, set the limit orders, do nothing heroic.

• VIX 30–45 — activate the booster. Genuine fear has arrived and the tranches start going in. This is where most mid-term lows in history have been carved out.

• VIX 45+ — go maximum. True washout pricing. Spikes of this magnitude have appeared only a handful of times since 2010 — the flash crash, 2011, 2015, early 2018, 2020, 2024 — and inside a still-valid bull market, every one of them was a generational entry dressed up as the end of the world.

Two footnotes belong on that ladder, and they matter.

First, the qualifier «inside a still-valid bull market» is doing real work: the ladder is conditional on the tripwires from the previous section staying silent. A VIX of 50 with credit spreads blowing out and the liquidity response absent is 2008, not 2018 — that is exactly why the tripwires exist. And second, note where we stand today: mid-teens, the bottom of the ladder, nothing to do but prepare. The hardest part of this entire playbook is not the buying in October. It is the patience in July.

Greed is obvious. Fear is the edge. When the cannons fire, buy.

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Before you go

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We write pieces like this every week — on the market cycles, investor psychology and businesses and charts where the «Good Story» and the «Good Chart» finally agree.

— Thierry and Team arvy

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Legal Notice: At the time of publication, the companies and instruments mentioned may or may not be portfolio holdings of arvy. This document has been prepared solely for informational and marketing purposes and does not constitute an invitation, offer, or recommendation to acquire or sell any financial instruments. Seasonal and historical patterns are statistical observations, not guarantees, and past performance is not a reliable indicator of future results. arvy AG is authorised by FINMA as a manager of collective assets under CISA Art. 24.

Tomorrow we publish the last part of our semiconductor trilogy: when to sell a parabola you cannot time. The answer there is a process, not a prediction — twelve rules that work whether the chips top next month or melt up into 2028.

Today is the companion piece. Because there is one gauge sitting underneath this whole market that tells you why the endgame, when it comes, tends to come fast. It is old, it is unglamorous, and right now it is flashing.

It is called margin debt. Let me show you how it works, why the number everyone quotes is the wrong one to watch, and how it fits the semiconductor setup we’ve spent three parts mapping.

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What It Is, in One Sentence

Margin debt is the total amount investors have borrowed against their portfolios to buy more stock. You own $100,000 of shares, you borrow another $50,000 against them to buy more — that $50,000 is margin debt. Multiply across every brokerage account in America and FINRA reports the total once a month.

It is the single most reliable indicator of speculative excess in US equities, for one simple reason: it is not a survey, not a vibe, not sentiment. It is a claim. Real money, borrowed against real shares, that must be paid back regardless of what the market does next.

The current reading (May 2026): a record $1.42 trillion, up 53.7% from a year ago. Investors added roughly half a trillion dollars in borrowed money to their stock bets in just twelve months — a pace of borrowing not seen in nearly three decades.

The Mistake Almost Everyone Makes

Here is the part that matters, and it is the part most people get wrong.

They watch the dollar level. «$1.42 trillion, all-time high!» But the dollar level is almost useless, because it rises with the market — of course margin debt hits a record when the S&P hits a record. The level trending up with prices tells you nothing.

The signal lives in the rate of change — and, more precisely, in the direction of that rate of change.

Chart 1: US margin debt, year-over-year change — 67 years. Every major top was marked by the rollover, not the peak

FINRA margin-debt %YoY since 1960 — the 55% zone and the 2000 / 2007 / 2021 turns, Fundstrat, Finra

Look at the year-over-year growth rate across seventy years of history, and a pattern jumps off the page. Before every major top — 1972, 2000, 2007, 2021 — the growth rate climbed into a danger zone, rolled over, and started to fall. And it was the rollover, not the peak, that marked the edge.

Read that again, because it is the whole point: the top is not the highest reading. The top is the turn. The market doesn’t ring a bell at a level. It rings it when the borrowing that drove the rally starts, quietly, to reverse.

You don’t even need to wait for the extreme to see this bite. Drop the threshold to a more common trigger — every time the year-over-year growth rate breaks above 45% — and you get a far larger, more usable sample stretching back to 1960. Mark each of those breakouts on the S&P 500 and the clustering is hard to unsee: they bunch around the frothy, late-cycle moments, not the quiet middles of bull markets.

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Chart 1a: The S&P 500, with every instance margin-debt %YoY broke above 45% marked — since 1960

S&P 500 (log) with 45%-breakout markers — the late-cycle clustering, Fundstrat, Finra

And here is the part that turns a pattern into evidence. Take all of those 45% breakouts and average what the S&P 500 did next — one month, three months, six months, a year out. This is the honest, full-sample version of the claim, and it avoids the small-numbers problem of the 55% line: enough instances to actually mean something.

Chart 1b: Every instance margin-debt %YoY broke above 45%, and the S&P 500’s forward returns — since 1960

Forward S&P 500 returns after 45% breakouts — 1m / 3m / 6m / 12m, all instances, Fundstrat, Finra

Read the forward-return table as weather, not a clock. It does not say «sell on the breakout» — plenty of these signals fired and the market kept climbing for months. What it says is subtler and more useful: once leverage is accelerating this fast, the distribution of outcomes gets worse — forward returns thinner, drawdowns deeper, the ride rougher. You are being paid less to take more risk. That is the definition of a late-cycle tape.

There’s a rougher, higher line that has flagged outright euphoria for two generations — around 55% year-over-year growth. Where 45% is a common late-cycle warning, 55% is the rare, red-hot extreme: in roughly seventy years it has only been breached a handful of times, so treat it as a small-sample tell, not a law of physics. Today we sit at 53.7%, up from 53.3% the prior reading — through the 45% warning already, and now climbing toward that extreme line. We are not through 55% yet. And the day that matters isn’t the day we cross it — it’s the day the line stops climbing and turns down. This month of July, we will get updated numbers and it very likely will cross the 55% threshold.

Why Leverage Is the Part That Matters Most

The dollar amount isn’t really the danger. The mechanism is. And the mechanism is human.

On the way up, borrowed money feels like genius. You borrow, you buy, the position rises. You were right — and you were right with more money than you had. The market hands you a reward and calls it proof. So you do it again, bigger. This is the FOMO engine: every gain amplified, every bull looking like a prophet, the greed feeding on itself.

Here’s the psychological trap underneath it. Nobody adds leverage at the bottom, when it’s actually safe. They add it at the top, when it feels safe. By the time the borrowing is spiking, it isn’t the cautious getting greedy — it’s people who have been right for two years straight and have quietly stopped believing they can be wrong. Confidence is highest exactly where the ground is thinnest.

Then it turns. And the same psychology runs in reverse. A normal 10% dip triggers the first margin calls. The first call doesn’t feel like a signal — it feels like an insult, so people meet it, double down, defend the position. The market takes the cushion. The next call comes, and now it isn’t pride, it’s survival — and everyone sells at once. Forced selling begets forced selling. FUD — fear, uncertainty, doubt — floods in exactly where FOMO ruled a month earlier.

Chart 2: Leveraged-ETF trading activity — every dip bought harder than the last, until it isn’t

«BTFD» — S&P 500 vs aggregated leveraged long-ETF value traded, Topdown Charts, LSEG

That is how a correction becomes a crash. Not because the news got worse — but because the borrowed money all gets called back at the same time. Up is the party. Down is the bill.

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Where This Meets the Semiconductor Story

Now connect it to what we’ve been writing all week, because the two stories are the same story.

Remember from Part 1: semis at a historic extreme, record inflows, narrowing leadership. Here’s the leverage underneath that. Roughly 85% of all leveraged-ETF assets now sit in just three sectors: technology, AI, and semiconductors. In a single recent month, leveraged-ETF rebalancing drove over $100 billion of net buying — $38 billion of it into semiconductors alone.

Chart 3: Leveraged-ETF assets under management — and how much of it now sits in semis

Leveraged ETF AUM since 2020 — Semis $66B (30%), Tech ex-semis $81B (37%), Other, Citadel Securities

Sit with what that means. These products are mechanically forced to buy more of what’s rising and sell more of what’s falling, every single day. On the way up, that’s a self-reinforcing loop that makes the semi rally look far more organic than it is. But the loop runs both ways. On June 5, a 3x leveraged semiconductor ETF fell 31% in a single session — a preview, in miniature, of what forced deleveraging looks like when the most crowded, most levered corner of the market gets a scare.

Chart 4: The 3x leveraged semiconductor ETF (SOXL) — assets exploding into the climb

SOXL assets under management, 2022–2026 — the vertical late-stage spike, Koyfin, Kobessi

This is the machinery beneath Part 2’s warning. The semiconductor «story» is already weaker than the price. Layer record leverage — disproportionately concentrated in those exact names — on top of a cracked story, and you have the setup where a routine pullback can become something much faster and deeper. Not because the businesses changed overnight, but because the borrowed money didn’t leave gently.

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So What Do You Actually Do With This?

Here is where today’s piece hands off to tomorrow’s — and where I want to be very careful, because froth is not a timing tool.

Margin debt cannot tell you when. The market can stay irrational, and leverage can push well past 55%, for far longer than feels possible. People made fortunes in 1999 buying with both hands. Anyone who tells you this number means «sell now» is selling you a forecast, and we don’t trade forecasts.

What it can do is tell you the weather is dangerous — that the fuel for a violent unwind is stacked high, so when a pullback comes, it may be sharper than the news alone would justify. That’s context, not a trigger.

And here is the reframe that connects it to everything we believe. A hot, over-leveraged market with a cracked leader is not only a risk. Handled with a cool head, the shakeout it eventually produces is one of the great buying opportunities. This is exactly the tension in tomorrow’s finale: two hand-drawn roadmaps, a century apart, suggest we look more like the middle of this cycle than the end — a shakeout ahead, then a final melt-up, with a path that could plausibly carry the S&P 500 and Nasdaq 100 toward 10,000 and 40’000+, respectively, into the back half of the decade. The margin-debt rollover, if and when it comes, is likely to be that shakeout — weak hands liquidated, leverage flushed, the capitulation that hands stock from the late money back to the patient.

Which is why the discipline is the same discipline we preach everywhere: Keep a cool head. Don’t chase the hot tape. Wait for the pitch instead of swinging at everything.

The investor who survives the end of a great run isn’t the one who called the top — nobody calls the top. It’s the one who watched the metrics, kept some dry powder, and had rules ready in advance so that when the forced selling comes, they are the buyer, not the liquidated.

So watch the line. Not for a magic number — for the turn. While it climbs, the party continues and leverage keeps building. The day it rolls over is the day to pay full attention — because that is historically when the deleveraging begins, and with it, both the danger and, for the prepared, the opportunity.

Up is the party. Down is the bill. And the bill, when it arrives, is where fortunes are made by whoever kept their head.

Tomorrow: the finale — When Should You Sell Semiconductors? The twelve rules that let you act on all of this without ever having to guess the date. It’s a process, not a prediction. Read this today; use the rules tomorrow.

Read the rest of the trilogy: Part 1 — The Story Is Weaker Than It Looks · Part 2 — The Climax Run

Love,

Thierry

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This is educational content, not investment advice, and not a recommendation to buy or sell any security or to use margin. Leverage magnifies losses as well as gains. Figures are drawn from FINRA and public reporting as of the May 2026 release. Past performance is not a reliable indicator of future results. arvy AG is authorised by FINMA as a manager of collective assets under CISA Art. 24.

«Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street. When you read contemporary accounts of booms or panics, the one thing that strikes you most forcibly is how little either stock speculation or stock speculators today differ from yesterday.»
_{Edwin Lefevre, Reminiscences of a Stock Operator (1923)}

It’s the year 2002.

Sun Microsystems had crashed roughly 90% from its peak.

CEO Scott McNealy then gave one of the most remarkable interviews in financial history. He did not blame short sellers. He did not blame the economy. He did not blame his management team. He blamed his investors. For paying ten times sales.

Scott McNealy, CEO of Sun Microsystems, 2002: explaining why paying 10x sales for his stock had been insane

His logic was devastating in its simplicity. At ten times revenues, he explained, to give you a ten-year payback the company would have to pay out 100% of revenues for ten consecutive years in dividends. No cost of goods sold. No operating expenses. No taxes. No R&D. Just hand you every dollar of revenue. And even then, you would need the current revenue run rate maintained for a decade.

«Do you realize how ridiculous those basic assumptions are?» he asked. «You don’t need any transparency. You don’t need any footnotes. What were you thinking?»

McNealy was not speaking hypothetically. He was performing an autopsy on his own stock. Sun never recovered; it was eventually swallowed by Oracle for a fraction of its peak valuation. The company that branded itself «the dot in dot-com» became a footnote.

That was 2002. One company. One cautionary tale that every investor nodded along to and promptly forgot.

Today, 51% of the S&P 500’s market capitalization trades above ten times sales.

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S&P 500 sorted by Price-to-Sales ratio. 51% of total market capitalization trades above 10x sales:

Not one stock. Not one sector. Half the index. The same multiple that made a technology CEO call his own shareholders irrational 24 years ago, now applied to half of the most important equity benchmark on the planet.

Different decade. Same math.

The Math Behind 10x Sales

Let me walk you through the arithmetic, because it does not care about narratives.

Take a stock valued at ten times sales. Assume it re-rates to a more normal three times sales over the next decade – which is still a premium. And assume you want a respectable 10% annual return.

For that to work, revenue has to grow roughly eight-fold over ten years. That is about 24% growth, every single year, for ten consecutive years. The multiple compression from 10x to 3x eats more than two-thirds of your gain – so the business has to grow enough to overcome that drag and still hand you a double.

Is that impossible? No. But ask yourself what the base rates are.

McKinsey’s research found that only about 1 in 8 large companies sustains even 10% revenue growth for a decade; for 15%, the odds fall to roughly 1 in 30. And our 10x-sales stock does not need 15%. It needs 24%. The odds of that, at scale, with expanding margins, round to near zero.

The market is currently pricing roughly half the S&P 500 as if it will clear a bar that almost nobody in corporate history has ever cleared.

The base rate says low single digits. The price assumes something like a coin flip.

A bubble does not have to burst. It just has to revert to the base rate. That is all bubbles have ever done.

The Picks-and-Shovels Play on a Revolution That Was Real

In March 2000, one company became the most valuable on Earth.

It made the essential hardware behind the defining technology of its age. Revenue growing 50% a year. The undisputed leader. The picks-and-shovels play on a revolution that was unquestionably real. Wall Street called it the safest way to own the future.

It was Cisco.

The internet was real. The routers were real. The growth was real. At the peak, Cisco traded at roughly 30 times sales and over 150 times earnings, worth about 555 billion dollars. Analysts said it would be the first trillion-dollar company.

Then it fell 90%.

Cisco Systems: peaked near $80 in March 2000. It took until December 2025 – 25 years and 8 months – to see that price again

It took until December 2025 to see that price again. Twenty-five years and eight months to break even – even though the company roughly tripled its revenue over the same period. You did not buy the business. You bought the multiple.

The business won. The stock took 25 years to recover.

Now look at today. The most valuable company on Earth, Nvidia, designs the essential hardware behind the defining technology of its age. The undisputed leader. The picks-and-shovels play on a revolution that is unquestionably real. Wall Street calls it the safest way to own the future.

The internet was real. Artificial intelligence is real too.

That was never the question.

The question is what you pay for a certainty everyone already agrees on.

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The «Safest» Stock in the World Just Crossed the Line

If Cisco feels like ancient history and Broadcom like a niche AI bet, here is the example that should genuinely stop you: the most widely held, most beloved, most «safe» stock on the planet. Apple.

Apple now trades at 10.36 times sales – the highest valuation in its entire history. It just crossed the exact line McNealy was talking about.

But here is the part that should stop you cold. McNealy was describing a hypergrowth company. Apple is not. Revenue was $394bn in 2022, $383bn in 2023 — its first decline since 2019 — $391bn in 2024, and roughly $415bn in 2025. Four years. Less than 2% growth a year. Essentially flat.

Apple Price-to-Sales ratio. Now 10.36x — the highest in company history, against a long-term average of 3.6x

Yet over those same four years, when revenue was essentially flat, the stock soared and the price-to-sales multiple nearly doubled.

Read that again. The revenue barely moved. The valuation exploded. Every dollar of the gain came not from Apple selling more — but from investors agreeing to pay more for the same revenue.

That is multiple expansion. It feels like growth. It is not growth. It is sentiment.

Apple’s long-term average price-to-sales ratio is 3.6x. It now sits near 10.4x – almost three times its own norm. For the math to work from here, either Apple suddenly reaccelerates after years of stagnation, or the multiple holds at a record high. Forever.

History says multiples revert. They always do. The only question is whether earnings grow fast enough to cushion the fall.

This is the quiet danger hiding in the «safest» stock in the world. The ultimate quality compounder. A Buffett favourite. A permanent holding. All of that can be true – and you can still lose money for a decade if you buy a flat-growth business at three times its normal price.

Great company. Demanding price. They have never been the same thing.

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The Nifty Fifty: When «Buy Quality at Any Price» Ended in Tears

And it is not only about speculative tech. In 1972, the «Nifty Fifty» – Coca-Cola, Disney, McDonald’s, Polaroid, Xerox, the safest blue chips in America – traded at 42 times earnings, with the favourites above 80x.

When 1973 brought inflation, rising rates and recession, they were, in one columnist’s words, «taken out and shot one by one.» Disney fell 87%. Polaroid fell 91% and eventually went bankrupt.

Great companies. Ruinous prices.

It is a pattern that repeats across every generation – railroads in the 1870s, radio in the 1920s, Japan in 1989, dot-com in 2000, and the AI Big 10 today. Each time, a handful of names swells to an extraordinary share of the whole market.

The history of stock market bubble concentration, measured as % of US market cap. From Railroads (63%) to the Nifty Fifty (40%) to today’s AI Big 10 (40%)

«Buy quality and hold forever» is good advice. «Buy quality at any price and hold forever» has ruined more patient investors than any crash.

It was never one decision. It was always the price.

The Bulls Are Right About the Businesses – and Wrong About the Prices

Let me give the bulls their strongest argument, because it is a good one, and a piece that ignores it is propaganda, not analysis.

The objection goes like this. Today’s leaders are nothing like Sun Microsystems or the profitless companies of the dot-com era. Nvidia, Microsoft, Alphabet, Meta – they are among the most profitable enterprises in history. Fortress balance sheets, real earnings, and record margins that genuinely do justify higher sales multiples: a 30% net-margin business deserves a richer multiple than a 10% one. The quality is real, and quality deserves a premium.

All true. And I agree with most of it.

But notice what it defends: the businesses, not the prices. Cisco was wildly profitable in 2000. So was Microsoft, which still fell 65% and took sixteen years to recover. And the margin argument cuts both ways: margins are the most mean-reverting series in finance. Paying ten times sales while margins sit at all-time highs means stacking two optimistic bets – that the peak multiple holds, and that peak margins persist. Two things must go right, not one.

Profitability protects the company. It does not protect the multiple.

A great business at a great price is the foundation of every fortune. A great business at 25 times sales is a bet that the next decade will be flawless. The first is investing. The second is hope wearing investing’s clothes.

To be clear: I am not saying AI is a bubble in the sense of a fraud or a fad. AI is real. The productivity gains are real. The capex cycle is real – just as the internet was in 2000, just as railroads were in the 1870s. Every one of those revolutions changed the world. And every one of them ruined investors who paid too much for the privilege of being right about the future.

The technology is never the problem. The price is the problem.

When half the index trades above ten times sales, you are not investing in innovation. You are betting that a historically improbable outcome will materialize across hundreds of companies at once. That is not investing. That is faith. And faith, in markets, has a remarkably poor track record.

At arvy, we approach this differently. As I wrote in «Software’s Good Story – and Why It’s Not Good Enough», we walked away from software when the structural uncertainty became permanent. We prefer businesses where the bar is low and the valuation embeds pessimism, not perfection.

Waste Management needs the garbage to keep compounding – a low bar. Safran needs planes to keep flying – a low bar. A chip name at 25 times sales needs a flawless decade – a very high bar.

The price you pay determines the bar the company must clear. We prefer low bars. We sleep better that way.

Scott McNealy Knew

Scott McNealy asked his investors in 2002: «What were you thinking?»

He was being honest. The math at ten times sales was never going to work – not for Sun, not for Cisco, not for the dozens of great companies that crashed 80 to 99% after 2000 and took a generation to recover, if at all.

Today, that same math applies to half the S&P 500. The technology is real. The growth is real. None of that is in dispute.

But the price is the price. And the math is the math.

You just need to ask yourself the one question a technology CEO asked his own shareholders twenty-four years ago, in the wreckage of the last revolution everyone agreed was real.

What were you thinking?

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Legal Notice: At the time of publication of this article, the companies mentioned may or may not be portfolio holdings of arvy. Such securities may or may not be included in the portfolio at any point in the future. This document has been prepared solely for informational and marketing purposes and does not constitute an invitation, offer, or recommendation to acquire or sell any financial instruments or to engage in any other transactions. The relevant prospectus and key investor information documents (e.g. PRIIPs KID / Key Information Document) are available free of charge from arvy AG.

The Core Observations

1. SpaceX is reportedly pursuing an IPO at roughly 90× sales — alongside a 2025 net loss of USD 4.9 billion. For context: Saudi Aramco, the largest IPO of modern history, priced at 6× sales.

2. Together with the expected IPOs of OpenAI and Anthropic, potentially several trillion USD of new tradable supply is coming to market — all driven by the same AI narrative that already dominates around 60% of the S&P 500.

3. Our view: passive ETF buying after index inclusion will provide the exit liquidity for insiders and pre-IPO investors. For Swiss investors, the constellation around the listing date is structurally unfavourable. The historically more attractive entry window typically opens 6–24 months later.

A few weeks ago, in “The IPO Class of 2026”, we described why this wave of listings deserves Swiss investors’ attention. With the SpaceX S-1 filing, that thesis has now materialised in a concrete data room. What is documented there is not an investment case — it is a textbook setup for asymmetric supply dynamics, and at the same time a discipline test for any investor who has held the broad US market over the past two years.

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1. The Valuation: 90× Sales with a Net Loss

The headline numbers from the S-1 are unusual in their clarity:

SpaceX — S-1 Key FiguresValueRevenue 2025USD 18.7 bnNet loss 2025−USD 4.9 bnQ1 2026 — Profitabilitystill negativeReported target IPO valuation~90× salesSaudi Aramco IPO (for comparison)6× sales

The largest IPO in history — Saudi Aramco, the world’s largest energy company with a demonstrably profitable core business — priced at 6× sales. SpaceX is asking for fifteen times that multiple, with a structural net loss attached. Even relative to the most ambitious growth names of today’s Magnificent Seven, that is an extraordinary entry valuation.

We are not arguing that SpaceX is not a remarkable company. Starlink is a commercial reality with real customer utility, and Falcon 9 has fundamentally changed the economics of spaceflight. But between “remarkable company” and “90× sales with a loss at listing” historically lies several years of operational delivery. That delivery the investor is being asked to fully prepay on day one.

2. The TAM Is 93% Imagination

Source: SpaceX S-1 Filing, May 2026. “Estimated TAM by Segment” — the company’s official market sizing. Reading note: three buckets (Space $370B, Connectivity $1.6T, AI $26.5T) aggregate to the disclosed TAM of $28.5 trillion.

The company quantifies its Total Addressable Market in the S-1 at USD 28.5 trillion. That number is larger than the GDP of the United States. The breakdown deserves a very careful read:

The actual core of the company — rockets, satellites, Starlink connectivity — represents in this self-presentation less than 7% of the claimed market. Over 93% of the TAM is AI software that SpaceX does not build, does not sell, and does not own. The company is at its core a rocket and satellite business with one major AI compute contract — which we will come to next.

Every IPO inflates its TAM. That is an established discipline of market communication and not a new phenomenon. But SpaceX has set a new record in that discipline: 79.6% of the cited market opportunity sits in a single line item called “Enterprise Applications” — that is, enterprise software. A market in which SpaceX today owns no product, no sales organisation, and no demonstrated competence.

3. The Largest Customer Is the Most Fragile

The S-1 documents, in its later pages, a contract that on its own changes the entire investment thesis:

The Anthropic Contract in the S-1

· USD 1.25 billion per month for AI compute
· Up to USD 45 billion over three years
· Either party may terminate with 90 days’ notice

That single contract approaches the entirety of SpaceX’s prior-year revenue. It is also legally cancellable on three months’ notice — by either side. It is exactly the kind of risk factor that gets buried on page 47 of the prospectus and becomes the entire story two earnings calls later.

We do not want to overstate this: Anthropic is a well-funded company, and the underlying compute demand is real. But the structural asymmetry — a single customer whose contract volume exceeds the entire established core business, with 90-day termination — is precisely the type of concentration risk that typically does not get appropriately priced at the listing date.

4. The Future Markets Read Like Science Fiction

Source: SpaceX S-1 Filing, May 2026, “Future Markets” section. Verbatim reproduction of the future market segments listed by the company.

In the section titled “Future Markets”, the S-1 lists verbatim: point-to-point terrestrial travel, space tourism, in-orbit manufacturing, passenger and cargo transport to the Moon and Mars, energy production on the Moon and Mars, manufacturing capabilities on the Moon and Mars, asteroid mining.

This is not an investor letter from the communications team — it is a mandatory filing with the SEC. When a company is asking 90× sales today on the assumption that asteroid mining will eventually fund the cash flows, it isn’t selling a security. It is selling a worldview.

That worldview may well turn out to be correct. The operating question is not whether Elon Musk and his team are exceptional engineers (they are), but whether a Swiss investor in May 2026 should prepay the asteroid-mining phase at full price.

5. The Smartest Investors in the World Are on the Selling Side

A look at the cap table makes what may be the most important point:

These investors do not sell their best positions cheaply. When the seller is Peter Thiel, Mike Moritz, Marc Andreessen, a Saudi sovereign wealth fund, and the wealthiest software CEO in the world — the more useful question is not “who is selling?” but “who is buying, and why are those buyers convinced they are paying a better price than those sellers received?”

For historical context: Amazon IPO’d at USD 438 million. Google at USD 23 billion. Both became trillion-dollar companies. The IPO Class of 2026 will likely produce one or two comparable successes. But the best time to buy them was historically almost never the listing day. The honest price typically appears later, after the lock-ups have expired and the market has had time to decide what the business is actually worth.

When the smartest money in the world is the seller, the better question is who is on the buying side.

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6. The Real Mechanic — the Supply Wave of the IPO Class 2026

SpaceX is the most prominent, but not the only, element of the 2026 wave. Together with the expected listings of OpenAI and Anthropic, potentially several trillion US dollars of new tradable equity supply is coming to market — all driven by the same AI narrative that, by our classification, already dominates around 60% of the S&P 500.

The mechanic we are seeing here is not speculative — it is structural:

Phase 1 — Listing (Day 0 to ~Day 90)

Lock-up periods typically bind insiders and pre-IPO investors for around 90 days. During this phase, the actually tradable free float is small, which can push prices higher. Retail enthusiasm meets constrained supply.

Phase 2 — Index Inclusion

Once market capitalisation and trading history meet the index criteria, the new names are mechanically added to the Nasdaq-100, total-market, and eventually S&P 500 indices. Passive funds — meaning the majority of global index capital — must buy. That is rule-bound, not conviction-driven.

Phase 3 — Lock-up Expiry

In the very window in which the passive buying kicks in, the lock-up period expires. Insiders, early VC investors, and employees with vested equity become free to sell. Mechanically, the setup that we view as the central risk factor materialises:

Passive ETF buying after index inclusion provides the exit liquidity for legacy shareholders — precisely when those shareholders want to sell.

This is not a conspiracy and not malice. It is how the system mechanically works: index rules require purchases, lock-up expiry permits sales, and the two collide in a window. Anyone entering at the wrong moment is structurally buying the inventory that the smartest early investors are unloading.

7. What This Means for Other Tech Names

The supply wave has secondary effects that we factor into positioning. Three observations:

• Tesla — negative in the short term. A portion of the “Musk-exposure” capital is likely to rotate out of TSLA into SpaceX. The indirect SpaceX stake on Tesla’s balance sheet is too small relative to market capitalisation to offset that rotation.

• NVIDIA — neutral to slightly positive. SpaceX is an important GPU customer, and fresh capital in the AI compute ecosystem structurally supports demand. In the short term, IPO hype can pull attention and speculative flows away from NVDA.

• Broad market — temporary liquidity drain, then passive buying. Highly valued tech names can serve as a funding source in the pre-IPO phase. After index inclusion, passive buying takes over — primarily benefiting legacy shareholders.

Important: we expect this to remain primarily a tech- and sympathy-isolated phenomenon — episodic pressure in the hype segment, not broad market stress. The forthcoming IPOs (SpaceX, OpenAI, Anthropic) are all driven by the same AI hype narrative and need to deliver operationally “big time” to justify their valuations. Disappointments would primarily hit the AI and growth cluster, while the rest of the market should remain comparatively robust.

8. The Rate Component — the Overlooked Variable

A second concern is real interest rates, which remain elevated. Real rates are the central valuation metric for growth equities — they determine how the present value of cash flows projected far into the future is calculated today. That is precisely the segment of rate-sensitive long-duration equities at the centre of the 2026 IPO class.

The lesson from 2021 should not be forgotten: at that time, euphoric IPO valuations met a rate inflection point — with correspondingly painful consequences for new buyers. The macro context today is not identical, but the structural vulnerability of the rate-sensitive IPO class to a hawkish rate surprise is the same.

The Data in Numbers

• SpaceX IPO valuation: ~90× sales vs Saudi Aramco 6× sales · Net loss 2025: −USD 4.9 bn.

• TAM mix: 93% of the claimed market ($26.5T) is AI software SpaceX does not produce.

• Anthropic contract: $45 bn over 3 years, 90-day termination by either side.

• New supply 2026: SpaceX + OpenAI + Anthropic — potentially several trillion USD of tradable equity issuance.

Implications for Investors — arvy’s Positioning

At arvy, we are positioning defensively around this IPO wave. That has three concrete implications for our Quality equity fund and our savings-plan allocations:

First — no pre-IPO or day-one allocation to the 2026 class. Our investment process requires established cash-flow histories, demonstrated profitability, and valuations in historical context. None of the three prominent candidates meet those criteria at the listing date. That is not a statement about company quality — it is a statement about the phase of the investment cycle in which we invest.

Second — heightened vigilance on sympathy-driven high valuations in the existing portfolio. The AI-narrative-driven component of the market typically gets further fuelled in phases of IPO euphoria. We use such phases for discipline, not for add-ons.

Third — patience as strategy. Medium- to long-term, we remain constructive on the broader AI compute and Musk ecosystem. But the historical data is unambiguous: the more attractive entry point typically lies 6–24 months after the IPO, once hype, lock-up waves, and insider selling have worked through and the honest price has formed.

The allocation logic we described in the Quality note only gains weight through this IPO wave: if 60% of the broad index is already driven by a single narrative and the next two to three trillion USD of new supply originate from exactly the same narrative, then a Quality pillar with low AI-narrative exposure is not a speculative bet. It is the structural answer to a concentration and supply asymmetry that has few historical parallels.

Vanguard Advisor Alpha estimates the behaviour-gap cost of the average investor at 1.5% per year. The majority of that cost is incurred in phases like the current one — when a listing day becomes a cultural obligation and discipline is most uncomfortable.

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arvy Notes is the analytical market analysis series of arvy AG. Short, data-based observations from our research process. Written by Thierry Borgeat, Co-Founder of arvy, reviewed by Patrick Rissi, CFA, and Florian Jauch, CFA. Data sources: Refinitiv, MSCI, Alpine Macro, Bloomberg, S&P Dow Jones Indices. Sector and theme classifications (”around 60% AI-narrative-driven”) are based on arvy’s internal analysis and are estimates, not index-provider data. Charts are reproduced with source attribution and serve illustration purposes only.

Disclaimer: This publication contains general information and does not constitute personal investment advice. Past performance is not a reliable indicator of future results. arvy AG is authorised by FINMA as a manager of collective assets under CISA Art. 24. Imprint & Legal Information.

1. Roughly one-fifth of the S&P 500 today sits directly in semiconductor names, and by our classification around 60% of the index is invested in companies whose valuation is primarily driven by the AI narrative. Diversification has quietly left the broadest US benchmark.

2. At the same time, the relative performance of Quality stocks versus the S&P 500 stands at its lowest level since 1999, and the Momentum factor trades five standard deviations above its long-term trend. Quality has never been offered more cheaply against the broad market.

3. Our view: Quality today is primarily an allocation question, not a crash hedge — the missing diversification pillar against a concentrated index, at historically most attractive relative valuation.

Two market observations, one central thesis on portfolio allocation in 2026. The concentration of the S&P 500 has reached a level where a passive index product is economically barely distinguishable from a thematic AI bet. Quality stocks — as an asset class with low exposure to the dominant market narrative — simultaneously trade at a historically attractive relative valuation. For institutional and private Swiss investors, this is less a market-timing question than a strategic allocation question.

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1. Diversification Has Quietly Left the S&P 500

Gewicht von Halbleitern (Semis, wie Nvidia, Micron Technology, Broadcom und Co, im S&P 500

The S&P 500 today is no longer a broadly diversified equity benchmark. Its ten largest constituents — NVIDIA, Apple, Microsoft, Alphabet, Amazon, Meta, Broadcom, Tesla, Berkshire Hathaway, JPMorgan — represent roughly 35–38% of the total index. NVIDIA alone, at around 7%, accounts for more than the bottom 100 names of the index combined.

Looking beneath the surface, the picture sharpens further. By our sector classification, around one-fifth of the S&P 500 sits directly in semiconductor names (NVIDIA, Broadcom, AMD, Texas Instruments, Qualcomm, Applied Materials, Lam Research, Analog Devices, Micron, and others). Extending the definition to companies whose valuation multiples are primarily driven by the AI narrative — hyperscaler cloud providers, AI-software platforms, AI-infrastructure hardware, AI-adjacent consumer names — we estimate around 60% of the S&P 500 is AI-narrative-exposed.

For a Swiss investor invested “globally diversified” through an MSCI World or S&P 500 ETF, something quiet but fundamental has changed. What was a broadly diversified US equity portfolio ten years ago is today predominantly a thematic bet on the success of a single technology trend. That bet may pay off — or it may not. Either way, it is no longer diversification.

The resulting question is not whether AI is a transformative technology (it is), but whether a single theme should constitute 60 percent of an investment portfolio. From a risk-management perspective, the answer is unambiguous: no.

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2. Quality at 1999 Levels — and Momentum 5 Sigma Above Trend

Left — Refinitiv, Jeff Weniger, as of 10 November 2025: 6-month relative return of the S&P 500 Quality Index versus the S&P 500. Right — Bloomberg Opinion, Bloomberg Factors To Watch: long-short total return of the FTW US All-Cap Momentum factor versus Quality since 2 April 2025 (”Liberation Day”).

While concentration in the index has intensified, Quality as a factor has systematically lagged. The left half of the chart above documents this clearly: the 6-month relative return of the S&P 500 Quality Index against the broad S&P 500 currently stands at -11.5%. That is exactly the level of April 1999 — the last time Quality investors lagged as severely as today. The only other data point of the past 30 years that comes close is October 2025 (-8.8%).

The right half shows how this manifests today: since 2 April 2025 — labelled “Liberation Day” by the market — the FTW US All-Cap Momentum factor has gained around 7%. The corresponding Quality factor (strong balance sheets, low debt, consistent cash flows, high returns on equity) has lost around 22% over the same period. A spread of roughly 30 percentage points between the two factors in twelve months is historically unusual.

Source: MSCI, Alpine Macro 2026. Ratio of US Momentum stocks to US Minimum Volatility stocks, based on large- and mid-cap indices.

The quantitatively even clearer observation comes from Alpine Macro: the price ratio of US Momentum stocks to US Minimum Volatility stocks today stands five standard deviations above its long-term trend — higher than in the three comparable episodes of March 2000, June 2008, and February 2021. We do not claim that a direct market-timing signal can be derived from this indicator alone. But it makes one thing very clear: the relative valuation of Quality stocks versus the market has not been more attractive in 25 years.

Three times in 25 years, this setup has initiated multi-year Quality outperformance. But our argument today is not primarily historical — it is structural: Quality delivers the real diversification the broad index can no longer offer.

The Data in Numbers

S&P 500 concentration: ~20% directly in semiconductors, ~60% of the index AI-narrative-driven (arvy classification).
Quality vs S&P 500: 6-month relative return at -11.5%. Lowest point since April 1999.
Momentum vs Min Volatility: 5 standard deviations above long-term trend (Alpine Macro). Highest level since records began.

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Implications for Investors — arvy’s Allocation View

We are not writing this note to forecast a rotation over the next weeks or months. Market regimes cannot be timed with precision — not even with a robust understanding of factor cycles. It is plausible that the current constellation persists for another twelve months. It is equally plausible that it resolves faster than it feels in the middle of it.

What the data does establish clearly is this: when a single thematic narrative drives 60 percent of a global standard benchmark, and the asset class with the lowest exposure to that narrative simultaneously trades at the most attractive relative valuation in history, the allocation question is structurally settled. Quality belongs in every diversified portfolio — not as a speculative contrarian bet, but as a legitimate pillar of construction.

At arvy, we are positioned in our Quality equity fund in around 30 global companies that meet our Quality criteria: consistent and growing free cash flows, low net debt, high and stable returns on equity, attractive valuation in historical context. These companies deliver what the index heavyweights can structurally no longer provide to the same extent: genuine diversification against the dominant market narrative.

We understand that Quality investing has been uncomfortable in this phase — the past twelve months made that clear. But the allocation logic does not weaken over time, it strengthens.

Vanguard Advisor Alpha estimates the behaviour-gap cost of the average investor at 1.5% per year. Most of that cost is incurred in phases like this one — when a single narrative dominates the market and discipline is most uncomfortable. Quality allocation is the structural answer to precisely that temptation.

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arvy Notes is the analytical market analysis series of arvy AG. Short, data-based observations from our research process. Written by Thierry Borgeat, Co-Founder of arvy, reviewed by Patrick Rissi, CFA, and Florian Jauch, CFA. Data sources: Refinitiv, MSCI, Alpine Macro, Bloomberg, S&P Dow Jones Indices. Sector and theme classifications (”around 60% AI-narrative-driven”) are based on arvy’s internal analysis and are estimates, not index-provider data. Charts are reproduced with source attribution and serve illustration purposes only.

Disclaimer: This publication contains general information and does not constitute personal investment advice. Past performance is not a reliable indicator of future results. arvy AG is authorised by FINMA as a manager of collective assets under CISA Art. 24. Imprint & Legal Information.

War in Ukraine. Conflict in the Middle East. US-China tensions. Tariffs, sanctions, uncertainty everywhere. The headlines make it sound like the world is on the edge — and your portfolio right along with it.

It’s completely normal to feel anxious in times like these. The question “Should I sell everything?” is deeply human. But it’s almost always the wrong reaction. Because history shows — with remarkable clarity — that stock markets have survived every geopolitical crisis of the last 100 years. Every single one. Without exception.

This article gives you the data, the perspective, and the concrete strategies you need to not just survive turbulent times — but to benefit from them.

🎬 Video-Analysis

Contents

1. What the Data Really Says

2. Stock Markets and War: 100 Years in Numbers

3. The Counterintuitive Truth: Markets Rise Despite War

4. Why We React Wrong in Crises

5. 3 Strategies for Turbulent Times

6. Why Quality Companies Survive Crises

7. Using the VIX as an Opportunity

8. What World War II Teaches About Today’s Markets

9. Conclusion: The Tortoise Wins — Even in the Storm

What the Data Really Says

Before we talk about emotions, let’s talk about facts. The numbers are unambiguous:

~5%

Average S&P 500 decline after geopolitical shocks:

28 days

Average recovery time after geopolitical events:

75%

Of cases where the S&P 500 was higher 12 months after crisis onset

An analysis by LPL Research examining 20 major military conflicts since World War II found that the S&P 500 declined an average of roughly 5% after the initial shock. Markets typically bottomed within three weeks and took an average of just one to two months to return to pre-crisis levels — regardless of how long the conflict itself lasted.

Hartford Funds confirms: across analysed armed conflicts since WWII, the S&P 500 was positive after 12 months in approximately 70% of cases, with an average return in the high single digits.

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Chart 1: Don’t Stop Investing — S&P 500 Since 1950 With All 15%+ Drawdowns

The market is always crashing by double digits. But the S&P 500 has returned 10% per year on average. Every single drawdown was a buying opportunity in hindsight.

Source: Personal Finance Club, S&P 500 Log Graph since 1950

The message is clear: wars and crises are terrible for humanity. But for the stock market — if you think in decades rather than days — they are temporary setbacks in a long-term uptrend.

Stock Markets and War: 100 Years in Numbers

The following table shows S&P 500 performance after the largest geopolitical shock events of the past 80+ years. The data comes from Carson Research and covers 48 individual events — from “Germany Invades France” (1940) to “US Removes Maduro in Venezuela” (2026):

Chart 2: S&P 500 Performance After 48 Geopolitical Shock Events (1940–2026)

Green numbers = positive return, red numbers = negative return. The majority of cells are green.

Source: Carson Investment Research, S&P Dow Jones Indices, CFRA, Strategas, 02/2026

The key findings from the data:

After 1 month: The market was positive in 46.5% of cases. The average decline was just -0.9%. The median was -0.2%. Initial panic is often short-lived.

After 3 months: Already 66.7% of cases showed positive returns. The average was +0.8%. Recovery typically sets in faster than most investors expect.

After 6 months: 61.9% positive, with an average of +3.4%.

After 12 months: 65% positive, with an average of +3.0%. And here’s the crucial point: the three cases with the largest 12-month losses — Germany invading France (1940), Pearl Harbor (1941), Lehman Brothers (2008) — all coincided with a simultaneous recession. Without a recession, the market almost always recovers.

The Historical Lesson: Geopolitical crises alone are almost never enough to bring down the stock market long-term. What truly damages markets is a combination of geopolitical shock AND economic recession. As long as corporate earnings are growing and the economy holds, markets recover — often faster than expected.

The Counterintuitive Truth: Markets Rise Despite War

What surprises most investors: stock markets often rise during wars, not just after. The explanation lies in the forward-looking nature of markets — they price the future, not the present.

Chart 3: “Buy the Invasion” — Market Reactions to Five Major Wars

Vietnam (1964), Gulf War (1991), Afghanistan (2001), Iraq (2003), Crimea (2014) — in every case, the onset of war marked a trough, followed by a rally.

Source: Historical market data

Two particularly striking recent examples documented by Invesco:

MSCI Poland Index since Russia’s invasion of Ukraine: Since February 24, 2022, the Polish stock market rose 155% — that’s 26.3% per year. The country next door to the war zone delivered one of the world’s best stock market performances.

MSCI Israel Index since the Hamas attack: Since October 7, 2023, the Israeli stock market rose 113% — 37.1% per year. A country in active conflict, whose stock market ranked among the top performers globally.

These are not outcomes anyone would have predicted in the early days of those conflicts. But they confirm the pattern: markets respond to economic fundamentals, corporate earnings, and monetary policy — not to headlines.

Invesco’s Conclusion: “Geopolitical conflicts, while unnerving, shouldn’t change investors’ long-term investment plans. History shows that other factors — economic growth, business innovation, and monetary policy — drive the path of the markets.” And when central banks are cutting rates (as the Fed did recently in 2025), that’s an additional tailwind for equities.

Why We React Wrong in Crises

If the data is so clear, why do so many investors panic-sell anyway? The answer lies not in logic but in psychology.

Loss Aversion: The pain of a loss weighs roughly twice as much psychologically as the joy of an equal-sized gain. When your portfolio drops CHF 10,000, it feels twice as bad as the happiness you felt when it gained CHF 10,000. This isn’t weakness — it’s human neurobiology.

Availability Bias: Dramatic news (war, crash, panic) is more emotionally present than the quiet, boring months when the market steadily rises. You remember the COVID crash of March 2020. You don’t remember the 47 months after, during which the S&P 500 more than doubled.

Action Bias: In crisis times, “doing nothing” feels wrong. We feel compelled to act — sell, reallocate, hedge. But the data shows: the best action is almost always no action.

Missing the Best Days Costs a Fortune: A Visual Capitalist analysis of the S&P 500 (2003–2022) shows: $10,000 fully invested grew to $64,844. Missing just the 10 best trading days — seven of which occurred during bear markets like 2008 and 2020 — would have left you with just $29,708. That’s a 54% reduction in returns, simply from not being invested at the wrong moment. The best days almost always come directly after the worst ones. If you sell, you miss both.

Chart 4: The cost of timing the market. Bad timing can take a bite out of returns

Source: Visual Capitalist

More on the psychology of investing in our article Master Your Emotions When Investing and our Book Club summaries of The Psychology of Money and Thinking Fast and Slow.

Every Friday, we put the markets in context. arvy’s Weekly analyses one quality stock per week — with charts, fundamentals and perspective. Especially in turbulent times, knowledge beats panic. → Subscribe for free (12,000+ readers)

3 Strategies for Turbulent Times

We’ve written extensively about arvy’s three core principles for navigating volatility. Here’s the summary — and why each principle is especially relevant right now:

Strategy 1: Know What You Own — And Why

Peter Lynch said: “Know what you own and why you own it.” If you can’t explain in 30 seconds why a company is in your portfolio, you shouldn’t own it — especially not in a crisis.

At arvy, investors can explore every company in the portfolio through the app — with full transparency and clear explanations. When you know that Ferrari produces only 14,000 cars per year, has a waiting list measured in years, and operates at a 23% net margin, you also know: a tariff dispute between the US and China changes none of that. Demand for Ferrari exceeds supply — in every market phase.

This understanding is your shield against panic. Those who know what they own don’t sell in fear.

Strategy 2: Lump Sum + Savings Plan (Dollar-Cost Averaging)

The holy grail of investing is simple: invest a lump sum, then add a fixed amount every month via standing order. In good times, your capital participates. In bad times, you buy at lower prices.

The critical part: keep the savings plan running — especially during crises. Charlie Munger said: “The first rule of compounding: Never interrupt it unnecessarily.” Those who panic-sell and miss the best recovery days pay an enormous price.

Warren Buffett puts it simply: “Do not save what is left after spending — spend what is left after saving.” On the 25th of each month — right when salary arrives — the money flows straight to the investment account via standing order. Before bills, before shopping, before everything else. That’s how you pay your future self first.

Strategy 3: Larger Lump Sums During Sharp Drawdowns

Every 5–7 years, the S&P 500 drops by 20–30% or more. These are the moments when long-term investors build their wealth — not despite the crisis, but because of it.

In practice: when the market is 10% below its peak, increase your savings plan or invest an additional lump sum. At a 20% drawdown: invest more. At 30%: even more. Not all at once — staggered, disciplined, without emotion.

The Pattern of History: After every major war — Vietnam, Gulf War, Afghanistan, Iraq, Crimea — the market was higher 12 months after the conflict began in the majority of cases. The pattern doesn’t mean “wars are good for markets.” It means: markets recover because companies adapt, innovate, and grow — despite everything. And the investors who stayed invested during the panic benefit most from the recovery.

How all of this works in detail — including concrete chart examples with the arvy portfolio — is covered in our article How to Handle Stock Market Volatility: arvy’s 3 Core Principles.

Why Quality Companies Survive Crises

Not all stocks are equal. In crisis times, the wheat separates from the chaff — and this is precisely where the advantage of quality investing shows.

Quality companies are characterised by strong cash flows, low debt, dominant market positions, and pricing power. They can not only survive crises but emerge stronger — because weaker competitors give up while the strong gain market share.

Some examples from the arvy portfolio:

Visa: Earns from every card transaction worldwide. As long as people pay — in good times and bad — Visa earns. The business model is crisis-resistant because it’s tied to transaction volume, not to economic growth alone. During the COVID crisis of 2020, Visa’s stock fully recovered within 5 months.

Microsoft: Cloud computing, enterprise software, and AI aren’t optional — they’re infrastructure. Companies don’t cancel their Azure contracts in a crisis. That makes Microsoft a “must-have,” not a “nice-to-have.” Revenue actually grew during the COVID pandemic as companies accelerated their digitalisation.

Interested in arvy’s Database and Portfolio (34 Holdings)?

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arvy’s Philosophy: Skin in the Game: We invest in companies that may seem “boring” in the short term — but through their consistency, outperform most market participants over the long run. And the arvy founders invest over CHF 100,000 of their own money in the same portfolio. Same fees, same returns, same risk. If we stay invested through corrections, so can you. → Skin in the Game: Why We Invest Ourselves

Using the VIX as an Opportunity: When Fear Is Greatest

The VIX — also known as the “fear gauge” — measures the expected volatility of the S&P 500 over the next 30 days. When the VIX is high, fear is high. And that’s precisely when the best buying opportunities arise.

The logic: a high VIX means the majority of market participants are in panic. Prices have already fallen sharply. The bad news is priced in. And historically, VIX spikes are followed by above-average recovery periods.

An Invesco analysis of the Geopolitical Risk Index shows: across 11 historical instances where the index peaked, the S&P 500 was significantly higher in the following year in the majority of cases. The conclusion: peak fear is almost always a better buying point than peak euphoria.

Chart 5: S&P 500 and VIX Spikes

Source: TrendSpider

This doesn’t mean blindly buying into falling markets. It means: if you have a savings plan that invests automatically every month, you buy more shares at lower prices during fear phases. The standing order is your best friend when the VIX explodes — it invests without emotion, automatically and with discipline, precisely at the moments when you couldn’t bring yourself to do it manually.

What World War II Teaches About Today’s Markets

If there is one ultimate stress test for stock markets, it’s the Second World War. The world stood at the abyss — and the stock market?

Chart 6: S&P 500 Performance 1940–1945

Despite years of war to come, the market bottomed in mid-1942 — and rose continuously from that point on.

Source: Historical S&P 500 data, GS

The S&P 500 hit its bottom in June 1942 — in the middle of the war, when the outcome was still completely uncertain. From that point, it rose steadily while the war raged on for another three years. The stock market didn’t “wait for the war to end.” It anticipated the recovery long before the last shot was fired.

The lesson for today: if the market survived the Second World War — and found its bottom during the war, not after — it will survive today’s geopolitical tensions too. The question isn’t whether, but when — and whether you’re invested at that moment.

Chart 7: S&P 500 and All Wars Since 1928 — The Big Picture

Every marked point is a war or conflict. The line goes up regardless — for over 100 years, without exception.

Source: First Trust, S&P CapIQ, Bloomberg. Monthly index levels 12/1927–2/2022

Conclusion: The Tortoise Wins — Even in the Storm

Let’s summarise what 100 years of stock market history teaches us:

1. Geopolitical crises are temporary. Long-term economic growth is not. Since 1928, the S&P 500 has survived two world wars, the Cold War, Vietnam, the Gulf War, 9/11, the financial crisis, COVID, and the Ukraine war. Every time, the market recovered. Every single time.

2. Panic selling is the most expensive decision you can make. Missing the 10 best trading days over 20 years cuts your returns in half. And the best days almost always come during or immediately after the worst ones.

3. Quality companies survive crises — and benefit from them. Nestlé, Visa, Microsoft — they sell products people need in every market phase. A portfolio of such companies gives you the confidence to stay invested even at -20%.

4. The savings plan is your strongest ally. Automated investing via standing order removes emotion from the equation. You buy in good times, you buy in bad times — and over 20 years, you build wealth that doesn’t fear crises.

“The stock market is a device for transferring money from the impatient to the patient.” — Warren Buffett

The world will always have crises. There will always be wars, political tensions, economic uncertainty. The question isn’t whether the next crisis is coming — it’s whether you’re prepared. With a clear plan, a portfolio of quality companies, and the discipline to stay invested, you are.

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Legal Notice: At the time of publication of this article, the companies mentioned may or may not be portfolio holdings of arvy. Such securities may or may not be included in the portfolio at any point in the future. This document has been prepared solely for informational and marketing purposes and does not constitute an invitation, offer, or recommendation to acquire or sell any financial instruments or to engage in any other transactions. The relevant prospectus and key investor information documents (e.g. PRIIPs KID / Key Information Document) are available free of charge from arvy AG.

Do I have any regrets?

Yes.

My main regret is not starting my investment journey at a young age. It would have been wise to actively invest with a clear plan during my teenage years. Ideally, I should have gained knowledge about long-term investing and its benefits while still in school.

I will share my thoughts on the concept of investing - the way I see it and provide some key insights from my personal experiences.

And I will answer your most important question: Can I be a good investor?

Spoiler alert: I genuinely think that anyone can be a successful investor.

What makes a good investor?

Many believe that being a good investor requires expert knowledge of the stock market or extraordinary intelligence in selecting stocks. However, it turns out that anyone can be a good investor by following a few simple steps. Being a good investor involves developing good habits, effective planning, and financial savvy. I strongly believe that financial intelligence should be accessible to everyone.

An intelligent investor understands the purpose behind their investments and the assets they invest in. They can consistently contribute to their portfolio over time and maintain control over their entire investment strategy.

Four simple do’s:

1. Do create a plan – Establish a clear investment strategy, investing schedule, time horizon, and goal, such as investing for retirement, a house, or your child’s college education.

2. Do build a diverse portfolio – Avoid putting all your eggs in one basket. Different asset classes, from stocks to bonds, carry varying levels of risk and return. By diversifying, you can mitigate extreme losses.

3. Do stay the course – Once you have developed a plan and begun implementing it, stick to it. Invest consistently and regularly.

4. Do keep learning – No investor knows everything. As our world evolves, so do the markets.

Two important don’ts:

1. Don’t try to time the market – I will show you why it is a fool’s game.

2. Don’t make emotional decisions – Seeing a decline in your portfolio can feel like getting punched in the belly. Keep your composure and inhale deeply.

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How do I start becoming a good investor?

My investment strategy starts with saving money - the first pillar of my investing foundation.

Warren Buffet, a renowned investor, once said, “Do not save what is left after spending; spend what is left after saving”.

Yes. Savings are the initial requirement as an investor. I firmly believe in taking care of yourself first. Therefore, I allocate a dollar to myself before considering any purchases. Many people hold the belief that spending comes first and saving comes later. In my opinion, this formula leads to disaster, as it eventually results in losing everything.

The 50-30-20 rule is a good way to start. The 50-30-20 rule is a simple way to budget your monthly net income. It states that 50 percent of your net income should be earmarked for fixed costs (such as rent and bills), 30 percent for personal needs (such as hobbies or going out) and 20 percent for savings.

The purpose of the rule is to manage your money more consciously and thus build up assets in the long term. Try to keep to the 20 percent savings as soon as possible.

Interested in arvy’s Database and Portfolio (34 Holdings)?

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When do I start?

The timeframe is the second pillar of my investing foundation.

The earlier I begin investing, the more I will benefit in the long run. Yes, you can start whenever you want. Regardless of age, anyone can invest and save, but starting as early as possible is ideal. The power of compound interest is the 8th wonder of the world, highlighted by none other than Albert Einstein.

Imagine I am an investor in my 30s, and I have invested in the S&P 500. Should I be concerned if the S&P 500 is currently at 4300 or 3400? Yes, I know, that’s a 20% difference. To put it into perspective, the S&P 500 has averaged a return of approximately 10% per year over the past 100 years. Thus, in terms of the time frame of investing, it is a grain of sand in the desert. It is a blimp in history.

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Chart 1: S&P 500 since inception

Quelle: TradingView

Allow me to provide two examples that illustrate my perspective on investments in relation to the timeframe and the power of compound interest. In both cases:

• We start with an initial investment of CHF 10,000.

• We contribute CHF 250 every month (Dollar Cost Averaging - DCA).

• We have a timeframe of 30 years.

• The market yields an annual return of 10%.

Example A: Immediate market rise

Quelle: arvy, investment calculator

Let’s conduct a thought exercise now. Imagine you are so unlucky that the epidemic starts to spread the time you invest CHF 10,000 in the S&P500. As in 2020, the stock market drops 30% during the ensuing few weeks, and your original investment falls from CHF 10,000 to CHF 7,000. However, even in such a situation, we remain committed to our investing strategy, maintain our belief in the power of compound interest, and continue DCA at the agreed-upon rate of CHF 250 per month. Is it the end for us?

Example B: 30% market decline after the initial investment

Quelle: arvy, investment calculator

Despite this unfortunate scenario, the difference in the final amount is only CHF 50,000 compared to the previous example. It is a mere 8% difference, even though we initially experienced a 30% decline - a worst case timing.

Lesson: Timing the market for long-term investing is a fool’s game.

The most important part is to start the journey.

Consistency and adherence to your plan are paramount

This demonstrates to me that timing is not truly significant. Rather, it is the time in the market and consistency of DCA that matters.

Assume I manage to accumulate a larger sum of money. With an index like the S&P 500, it is rare for a 5-to-7-year period to pass without experiencing a 20-30% drawdown.

Therefore, when these drawdowns occur occasionally, once I have a larger sum saved, I could:

• Increase the frequency and amount of my DCA. For example, from CHF 250 to CHF 500

• Decide to put in a larger amount of capital overall when the S&P500 has dropped by 30% or more

In investing, I do not need to know what will happen next, and I cannot know what will happen next. It is as simple as that.

For me, consistency is key. I’ve been following this approach for a decade, and together we can continue it for many more decades.

We want you to join us and take advantage of the greatest wealth creation machine ever - the financial market. We manage long-term investment strategies to compound your capital. And explain it along the way.

arvy’s takeaway: Good investors do not excel at investing huge sums or picking secret stocks. They develop an investment strategy that suits them and strive to adhere to it, regardless of what life throws at them. To harness the power of long-term investing, these three fundamental rules are vital: invest early, reinvest the returns, and ensure broad diversification.

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Legal Notice: At the time of publication of this article, the companies mentioned may or may not be portfolio holdings of arvy. Such securities may or may not be included in the portfolio at any point in the future. This document has been prepared solely for informational and marketing purposes and does not constitute an invitation, offer, or recommendation to acquire or sell any financial instruments or to engage in any other transactions. The relevant prospectus and key investor information documents (e.g. PRIIPs KID / Key Information Document) are available free of charge from arvy AG.

arvy’s teaser:Want to make your investing more effective — without overthinking it? Start with a lump sum, keep your DCA steady, and learn how to use volatility to your advantage. From simple monthly investing to smart buying during market drops and VIX spikes, discover how to stay calm, consistent, and ahead of the curve. And no worries: arvy takes care of everything for you.

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There’s a timeless saying in investing:

“Time in the market beats timing the market.”

No one — not even professionals — can consistently predict short-term ups and downs. The investors who win are the ones who get into the market early and stay there.

That’s why the most important step isn’t finding the perfect moment to invest — it’s starting.
If you already have some savings ready to deploy, consider investing a lump sum right away. Historically, being in the market earlier has outperformed waiting for the “perfect” entry point. Once you’re invested, you can use Dollar-Cost Averaging (DCA) to continue building your position over time, smoothing out volatility and strengthening your long-term gains.

Now, let’s go beyond the basics. At arvy, we believe in disciplined investing — but also in using smart, simple strategies to enhance your returns without adding stress.

Here are three DCA strategies, from foundational to advanced, that can help you make the most of every market condition.

The Foundation: Classic DCA (Every Month, Rain or Shine)

The simplest and most effective place to start is classic DCA.

Here’s how it works:
You invest a fixed percentage of your net income — typically 10–20% — every month, regardless of what’s happening in the markets.

For example:

• If you earn CHF 6,000 per month, you could automatically invest CHF 600–1,200.

• You do this every month — no matter if markets are rising, falling, or flat.

This steady rhythm removes emotion from your decision-making. You’ll buy more shares when prices are low and fewer when prices are high — averaging out your cost per share over time.

Classic DCA is ideal for busy people who want to build wealth quietly in the background. You don’t need to watch markets daily, and you don’t need to worry about short-term noise.

It’s not flashy, but it’s powerful — and it’s the cornerstone on which all great investment plans are built.

The Accelerator: Boost DCA When Markets Drop

Once you’ve established your regular DCA routine, you can add a layer of strategy — adjusting your investments when markets experience meaningful pullbacks.

Here’s the idea:

• Continue your normal monthly DCA.

• When the market drops 10%, 20%, or 30% from recent highs, you increase your contributions temporarily.

For instance:

• Market drops 10% → double your regular investment.

• Drops 20% → triple it.

• Drops 30% or more → invest even more if your budget allows.

This approach lets you stay consistent but take advantage of rare opportunities when stocks go “on sale.”

You’re not trying to guess the bottom — you’re simply using market declines as a signal to buy more. Think of it like shopping during a seasonal sale: you already buy what you need regularly, but when prices are discounted, you grab a little extra.

Over the long term, this disciplined “buy-the-dip” method can enhance returns significantly, because your extra funds are invested when valuations are most attractive.

And don’t worry — at arvy, we keep an eye on market trends. When markets experience a notable correction, we’ll highlight it so you can decide whether to lean in.

The Advanced Strategy: Watch the VIX — and Embrace the Panic

Now we move to the most refined version of DCA — one that incorporates market psychology itself.

This strategy revolves around the VIX, short for Volatility Index. Often called the “fear gauge”, the VIX measures how volatile investors expect the market to be in the near future.

Here’s what it tells us:

• When the VIX is low, markets are calm, investors feel confident, and prices often sit near highs.

• When the VIX spikes, fear dominates — volatility surges, investors sell in panic, and prices often drop sharply.

History shows that these VIX spikes almost always coincide with major buying opportunities.

Every time the VIX has surged — during the 2011 Euro debt crisis, the 2015 flash correction, the 2018 sell-off, the 2020 COVID crash, 2024 Japan Carry Crisis or 2025 Trump “Liberation Day” Tariff Threat — the stock market was near a bottom. Investors who stayed calm and bought during those fearful moments saw strong long-term gains.

Chart 1: S&p 500 and VIX Index – almost every time we see a significant spike a market opportunity arises

Here’s how to use it with your DCA:

• Continue your normal monthly investing, as always.

• When you see (or we alert you to) a major VIX spike — typically above 30–40 — that’s your signal to boost your investments significantly for that period.

You don’t need to predict the exact bottom; you just need to recognize widespread panic and act rationally when most people can’t.

At arvy, we’ll monitor this indicator for you. When the next big VIX spike happens, we’ll send an update — so you can take advantage of the opportunity calmly, without stress or guesswork.

The key? Embrace the panic. Fear is temporary, but the value it creates for disciplined investors is lasting.

Putting It All Together

Before all strategies, there’s one rule that stands above everything else:

You can’t benefit from the market if you’re not in it.

That’s why the first and most important step is simply to start.
Whether it’s with a lump sum or your first DCA contribution — getting invested is what unlocks every other advantage. Markets reward time and patience, not perfection.

Once you’ve taken that first step, the rest falls into place naturally. Here’s how the four layers of smart investing build on each other:

These four layers work together perfectly: You start by getting in (Strategy 0), then stay consistent (Strategy 1), lean in when markets drop (Strategy 2), and finally capitalize on volatility when fear peaks (Strategy 3).

Key Takeaways

• Start now. Don’t wait for the perfect moment — a lump sum today plus consistent DCA beats hesitation every time.

• Consistency wins. Regular investing builds wealth steadily, even through uncertainty.

• Volatility is opportunity. Fear and market drops are moments to lean in, not pull away.

• Have a plan. Knowing how you’ll react to drops or VIX spikes keeps emotions out of your decisions.

• Stay connected with arvy. We’ll monitor markets and volatility, keeping you informed when opportunity arises.

In the end, successful investing isn’t about luck or timing — it’s about time, patience, and discipline. By combining these three DCA strategies, you’ll be positioned not just to weather volatility, but to use it to your advantage.

So, next time the headlines scream panic and the VIX shoots higher — take a breath, smile, and remember: these are the moments your future self will thank you for.

We’ll let you know when that moment arrives. Until then — start now, stay consistent, and trust the process.

No Investment Advice. DYODD.

«Crocodiles are easy. They try to take you out and eat you. People are harder. Sometimes they try to be your friend first.»
_{Steve Irwin, Crocodile Hunter (1962–2006)}

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Divergences.

In investing, that’s not a word you want to hear.

Why? Healthy markets confirm their trends. We want a bull market backed by broad participation and classic indicators: breadth (how many stocks are rising), momentum, and seasonal patterns.

When price races ahead while those indicators stall, we don’t get confirmation; we get a divergence – a disconnect between price and the underlying engine that usually powers it.

That’s where we are in mid-August: red flags popping up across several well-watched gauges.

What usually happens in such a setup is best captured by the crocodile analogy: the market opens its jaws wide, just like the prehistoric predator.

And then, with high probability – or to put it in investor terms, with an unattractive risk/reward –, the gap between the upper and lower jaw has to close. That can happen in two ways:

• The «outperforming» side pulls back,

• Or the «underperforming» side rallies to catch up.

But here’s the twist: in nature, crocodiles can only close their jaws from the top down. And in markets, when the gap is wide and risk/reward looks poor, history suggests the easier path is usually down, too.

And that’s why, given today’s market setup, the odds say just one thing.

The crocodile – a.k.a. the market – is about to snap.

Divergences: A classic warning sign

A great historic example of a hefty divergence is playing out right now – straight from the classic Dow Theory, a 100+ year-old framework used by market veterans to spot major trend shifts before they make headlines.

At its core, the Dow Theory says: for a market rally to be sustainable, both the broader market (Dow Jones Industrial Average or S&P 500) and the Dow Jones Transportation Index must move in the same direction.

And why transportation? Because it reflects the movement of goods – a direct proxy for real economic activity. No goods being shipped = no business being done = red flags.

Now, look at the chart:

• The dark line (S&P 500) has pushed to new highs.

• The pink line (Dow Jones Transportation) is not confirming; it has made lower highs inside the highlighted box even as the S&P 500 advances.

• The blue arrows and shaded boxes mark prior periods (e.g., late-1990s, 2007, 2015, 2018, 2021) when Transports rolled over first or failed to confirm. Those episodes resolved with either a sharp catch-down in the S&P or months of choppy, sideways trading that eventually broke lower.

This is textbook divergence. The Dow Theory is flashing bright red. When the leaders of the real economy falter while the market keeps climbing? That’s not momentum. That’s a disconnect.

But don’t panic just yet. A divergence doesn’t mean the market will collapse tomorrow. But historically, it has meant that reality eventually catches up.

And while classic divergences can resolve in two ways – one side pulling back or the other catching up – the chart above reminds us it can happen fast (and painfully) or drag on for months in a grinding sideways market, like 2015–2016.

Either way, the risk/reward skews negative. And divergences rarely come alone.

Another statistically strong one is market breadth: the percentage of stocks above their 200-day moving average compared to the S&P 500. This metric tells you how healthy a bull market really is by measuring participation.

Chart 2: Breadth (stocks above 200-day SMA) vs. the S&P 500 – participation is thinning

Let’s do a walk-through of the chart:

• As the S&P 500 climbs (dark line), the breadth indicator (pink line) has been making lower highs (see the blue arrows) – meaning fewer stocks are participating in each new index high.

• The shaded boxes show this same pattern ahead of prior rough patches (2007–08, 2014–16, 2018, 2021–22, and now): the index grinds or dips, breadth weakens first, and eventually the gap closes – often via index weakness rather than a sudden burst of participation.

Other Divergences?

VIX vs SPX

Source: GMCP

NDX vs Stock above 200d

Source: GMCP

Leading Economic Index vs SPX

Source: StocCharts

SPX vs Bullishness

Source: GMCP

When only a handful of mega-caps pull the index higher and do the heavy lifting, the risk/reward degrades. Breadth says the rally’s getting narrower, which historically leaves the market vulnerable to a swift air-pocket or a slow, frustrating stall.

Or, in crocodile terms: it snaps.

So, what can investors do?

Go defensive or trim beta

When divergences start stacking up, you don’t have to dump your portfolio and run for the hills. But you also don’t want to pretend they’re not there.

The market is essentially sending the message that «the easy part of the rally is probably behind us» and the current rally is resting on increasingly narrow shoulders. Ten stocks – the «Magnificent 7» plus Broadcom, Oracle, and Palantir – have accounted for around 80% of the S&P 500’s returns since the so-called Liberation Day on April 2. As is so often the case, the difficulty lies in timing.

As we know from nature, crocodiles can stay still for a long time before snapping. But with markets at peak valuations and indices at all-time highs, a nimble, step-by-step shift makes sense.

There are two classic playbooks:

• Go defensive: Rotate into sectors and companies with steady cash flows, pricing power, and less dependency on economic cycles. Think consumer staples, healthcare, utilities. These names tend to hold up better when growth expectations fade. Health care trades at its lowest valuation to the S&P 500 over the last 10 and 30 years and has the worst relative underperformance over decades (see chart 3 below). And utilities offer high single-digit to low double-digit returns, paired with low valuations (absolute level) and relatively low risk.

• Trim beta – in plain English: reduce exposure to the most volatile, high-beta names that move twice as fast as the market… in both directions. That could mean taking profits in high-flyers or scaling back positions in cyclical sectors like discretionary retail, small caps, or certain industrials/materials/financials and the cyclical part of technology (see chart 4 below). Here you will find our twelve sell rules.

Chart 3: S&P 500 sector P/E valuations relative to history

Chart 4: Growth versus defensive growth relative trend

Neither move means you’re turning into a doomsayer – you’re simply managing risk while the probability of turbulence is rising. During such phases, it is worth taking a critical look at your portfolio: Are there any unconscious cluster risks? Where is there a lack of balance? Often, adding complementary quality stocks is enough to reduce dependencies and improve the risk/reward profile.

Worry about the crocodile you don't see

History shows that when divergences resolve negatively, the first hit often lands hardest on the riskiest corners of the market. By the time the «safe» names start wobbling, you’ve already bought yourself time — and optionality.

Appearances are currently deceptive: increasing concentration in the largest positions – which have consistently gained beta over recent years – has made the market riskier.

Chart 5: High market concentration always leads to mean reversion

For the savvy investor, this means not chasing short-term return maximization but staying true to their own strategy. Those who diversify consciously reduce cluster risks and create the basis for remaining invested even in difficult market phases. In the long term, this almost always leads to better results – not because you perfectly time every short-term movement, but because you are never forced to abandon your strategy in a panic.

In other words, to return to our crocodile analogy: concentrate on the crocodiles that you can see and therefore remain alert, because in the markets it is not the first crocodile that catches you.

After all, to quote another hero of my childhood, Jeremy Wade, alongside Steve Irwin: «It's always the crocodile you don’t see that you have to worry about.»

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No investment advice. Original article here: arvy NZZ The Market. DYODD.

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1. If you invest, you can lose. If you don’t invest, you’ve already lost.

Inflation is a silent killer. At just 2% per year, your CHF 100 today is worth CHF 54 in 30 years. Do nothing, and you guarantee loss. Investing is the only way to fight back.

2. Dollar-cost averaging (DCA) is the holy grail of investing.

Invest 10% of your net salary every month, no matter what. Whether the market is up or down, consistency is your best friend. The power of compounding does the heavy lifting over time.

3. Compounding applies to everything in life, not just money.

As Naval Ravikant said, “All returns in life, whether in wealth, relationships, or knowledge, come from compound interest.” Build, iterate, and play long-term games with long-term people.

4. Thus, never stop learning. The single greatest investment in the world is in YOU.

Investing teaches you about markets, psychology, and yourself. Read books, follow great investors and people, and stay curious. Never think twice about investments in yourself. The more you learn, the better your decisions will be.

5. Volatility isn’t your enemy—it’s your opportunity.

Market dips of -10%, -20%, or even -30% aren’t signals to panic; they’re signals to buy more. In the long run, markets go up, and volatility evens out. Historically, the S&P 500 has returned around 10% per year before inflation.

6. The stock market doubles your money every 10 years (on average).

The real return on equities (after inflation) has averaged 7% per year over the last 200+ years. That means your money roughly doubles every decade. Start early, and time becomes your superpower.

7. Don’t chase hot tips or the next big thing—it’s a shortcut to losing money.

I’ve done it. It hurt. A “sure thing” stock tip is usually neither sure nor a thing. And trying to find the next Amazon or Tesla is like playing the lottery. Most speculative investments fail. Stick to your investment plan and leave fast-money schemes to gamblers and scammers.

8. The stock market climbs the wall of worry.

Over the last 100 years, we’ve faced two world wars, 25 recessions, oil crises, pandemics, and financial meltdowns—yet the market has still grown at 7-10% per year. There’s always a reason to sell, but long-term investors win by tuning out the noise.

9. Investing is NOT gambling.

In 150+ years of stock market history, there has never been a single 20-year period where investors lost money. No matter when you invested, a long enough time horizon always led to gains—even after adjusting for inflation.

10. Leverage is the root of all evil.

Using margin (borrowing money to invest) might seem like an easy way to amplify gains, but it can also wipe you out completely. Avoid it. Period.

11. Don’t wait for the next crash to invest.

“I’ll invest when the market crashes again” sounds smart, but it’s deeply flawed. Market timing is nearly impossible. Those who wait often miss out on years of growth. Instead, invest steadily with dollar-cost averaging.

12. Reinvest your dividends.

Dividends feel nice, but spending them is a mistake. Reinvesting them significantly accelerates compounding. Over time, dividends can make up 40% of total stock market returns.

13. Never interrupt your dollar-cost averaging plan.

Stopping your investing plan because “the market is crashing” or because you “want to buy something else” is one of the costliest mistakes you can make. The key to wealth isn’t just investing—it’s sticking with it.

14. Master delayed gratification—Investing is a journey, not a sprint.

True wealth isn’t built overnight. The best investors think long-term, stay patient, and trust the process. The journey matters—every setback, every lesson, every market dip is part of the game. Play for decades, not weeks. Those who stay in the game win.

15. I wish I had started sooner. Time is your superpower.

CHF 500/month invested at 18 = CHF 200K by 33. The best time to invest was 15 years ago. The second-best time is today. Start now.

«The biggest risk is not taking any risk.»
_{Mark Zuckerberg}

This article was originally published here: NZZ The Market

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The title. I love it asked as a question.

It cannot be beaten for simplicity, and it enters deep into your mind.

Whether privately or professionally. Every now and then, your well-earned night’s sleep is disturbed by thoughts that you must deal with. Especially when I invest professionally and analyze companies, this is an important question in terms of risk management. After all, if you are aware of your risks and manage them accordingly, the upside will take care of itself.

This raises the question of what is keeping me awake at night at this time in this winter wonderland.

It is a big thought with long-term implications that will affect us all: What happens after the peak of market concentration?

Chart 1: S&P 500: Weighting of Top 10 Holdings (1980 – 2023)

A gift, now a curse

The performance of equities this year shows that the mega-cap stocks can hold up the entire index. The stock market is more concentrated in a small number of stocks than it has been for fifty years.

This is due to a confluence of macro and micro influences alike.

By far the strongest macro driver has been the wave of free money reflected in «QE Infinity» and extremely low interest rates. At the micro level, mega-caps tend to be among the most profitable in the world, as many of them have benefited from one or more of the transformative technology trends of the last decades. With a very current impulsive trend that can be accommodated under the umbrella of AI.

Chart 2: The «Magnificent 7» vs. everyone else, year-to-date 2023

This cohort’s performance in recent years, particularly in the US indices, has led to spectacular gains, but the high concentration now poses a problem for us.

It should be taken as a warning - for private individuals and pension funds alike. A gift is now becoming a curse.

What happens after peak market concentration?

A lost decade.

This is what happens to give the answer right off the bat. Like in the 1970s. Or after the Dotcom crash.

In my opinion, the idea that «stocks always go up» will come under pressure in the longer term. This is a different investment environment to that which has prevailed over the last 15 years, and it will require investors to adjust their thinking. Yet, most investors have only recently adapted to this «15 years old idea» by moving to passive investing and indexing. Not realizing the risks involved.

I worry about this - it is a thought that keeps me awake at night.

But what is the problem?

The top weights all have common characteristics. At the end of the day, it is a single investment. Technically speaking, it is an investment in the «size» factor, as you allocate your capital disproportionately to the largest companies. And many market participants have only recently started to flock to this segment because their commitments have been passivated.

Chart 3: What happens after Peak Market Concentration?

As they make up almost a third of the market, the top 10 stocks exert a significant influence on the direction of the overall equity indices, as has been seen so far in 2023. This would not be quite so worrying if the top 10 stocks were well diversified or had clear drivers of returns; unfortunately, this is not the case.

The majority are technology stocks whose relative returns are positively correlated with bond performance. Consequently, this also reduces the diversification benefits of balanced portfolios.

Again, it is one investment.

While I do not believe there is an ultimate limit to the degree of market concentration, I do believe there is a limit. The addressable markets are only so big, the global economy is only growing so fast and regulation is a constant threat to the world’s largest companies. There is no way around it: The historic level of equity concentration that we find today makes the investment environment difficult.

Nevertheless, it does provide an opportunity to rethink their allocation.

And history is our guide.

Sideways and bumpy

Historically, what happens when the ten largest stocks in the S&P 500 are extremely concentrated? The markets tend to move sideways. Volatility is higher and setbacks are more frequent.

Why? Because the market leaders become the market. Financial flows and sentiment have a much stronger influence on their returns. Moreover, history has shown that the outperformance of market leaders usually occurs before they reach the top of the market.

Once there, subsequent returns tend to lag the market. This pattern is backed by 100 years of data.

Chart 4: Annualized returns in excess of the US market before and after joining the top 10 largest US stocks, January 1927 – 2022

Does this mean ten years of sideways movement in the index?

Who am I to judge. I do not think I am in a position to decide what things are – I will just accept them. That said, I am in control of how I react, prepare and position my portfolio.

However, the vast majority of market participants will be making a bet with a very unattractive risk/reward ratio in the coming years if history is any guide. Just because the top weights are fundamentally incredible companies does not mean they are attractively valued. The «Magnificent 7» are very expensively valued. This valuation premium seems even higher given the high level of interest rates.

This is one of the reasons why we reduced the number of stocks in this cohort from six to two (Alphabet and Microsoft) over the course of the part quarters. Yes, in hindsight, I would have liked to have had Nvidia this year as well.

Chart 5: Top 10 Free Cash Flow Yield Spread vs. S&P 500

In the end, remember that no company is infallible, and we have proven a thousand times over on the stock market that, as Mark Twain’s saying goes «History doesn’t repeat itself, but it often rhymes».

What is the typical response when we put forward our thesis?

This time it is different.

The only constant is change

Unfortunately, this is not the case. It is usually not different.

Below are the world's ten largest stocks by market capitalization at the start of each decade. 1980/1990/2000/2010 and now 2022. This analysis even goes back to 1880 as we have solid stock market data since then to back up the statement. The market always tells a story or follows a narrative.

What stands out? Only one in ten stocks remain in the top 10 in the next secular trend.

Anything else?

Significant changes. Japan – once a top performer with a weight of 40% of the MSCI World at the start of 1990; now almost not worth mentioning at 6%.

Ultimately, this means that the large weightings in the indices (or the ETFs that track the index) need to be reduced. They either gain less than the broad market on the upside or lose more than the broad market on the downside. Both end worse for today’s indexed investor.

We are therefore convinced that pure indexing of the portfolio will lead to mediocre returns and that after a flood of money over many years and historically high concentration, dispersion will increase, and the alpha opportunity will strengthen. This is also reflected in the best periods for stock picking in the 1970s and after the Dotcom crash.

After all, the only constant is change.

The great paradox

The current level of concentration, particularly in the US, poses significant problems for investors.

In our view, the challenges can be summarized as follows:

1. Highest concentration in decades.

2. Highest valuation premium in decades.

3. Pronounced correlation between largest stocks and bonds.

4. The multipolar world is a threat to the key drivers that has allowed them to flourish – globalization and ultra-low interest rates.

The great paradox that runs counter to all these criteria?

We are living through the worst decade for active fund managers. This is not surprising given that the average equity fund manager buys way too many stocks and essentially follows the index. As a result, you get the index reduced by the manager’s fees and trading charges. This structure makes underperformance against the index inevitable.

Why do fund managers do this? Simply because the main risk for them is not to underperform the index with your investment. It is the deviation from their peers. Especially if they fail.

Let’s set this in stone: The biggest risk to most fund managers’ careers is not losing money or underperforming the index. It is that they do something different from their peers.

That is the main reason why we never talk about tracking error at arvy. Tracking error is the measure of how closely a portfolio tracks the index against which it is measured. In fact, we welcome tracking error, because a high active share and concentrated top positions drive alpha.

We want to diverge from the index, in a positive way of course.

Break out from the crowd

Investors face the daunting task of channeling new funds into an increasingly concentrated market.

I believe the time has come when, for the first time in years, the largest stocks have at least as much downside risk as upside risk. At arvy, we advocate for proactive responses from investors to counter the elevated risks posed by concentrated portfolios.

Warren Buffett said, «Failing conventionally is the route to go; as a group lemmings may have a rotten image, but no individual lemming has ever received bad press.» Of course, it is not clear that standing out from the crowd is career-enhancing, even if you’re right. The «guardians» of the investment world – the advisors who counsel institutional and private investors – are hardly advocates of thinking or acting differently.

This is ironic, because the only way to succeed in investing is to break out from the crowd.

Today, the biggest risk is not taking any risk.

«If you want to have a better performance than the crowd, you must do things differently from the crowd.»
_{Sir John Templeton, Brit.-American entrepreneur and fund manager (1912–2008)}

This article was originally published here: NZZ The Market

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Risk.

It is the crucial and unavoidable half of the investment scale.

As investors, we are first and foremost risk managers, because the law of large numbers applies. When you lose 10%, you need to earn 11% to break even. Once you move towards a 30% loss, the point of no return, the problem moves exponentially against you. Losing 50%, for example, mirrors the famous 100% profit required to break even again.

So, the first question you should ask yourself with any investment is what could go wrong. Not to mention that you should always avoid big and obvious risks. As for the latter, there’s one obvious risk I have already covered in depth that keeps me awake at night. It is the 15-year-old idea of persistently buying only the largest stocks by market capitalization for no other reason.

We are reaching a turning point. For years, it paid to follow the market. Free riders were able to profit from the capital allocation of so-called «smart money» investors. But what happens when the followers gain the upper hand, as is now the case? A crowded trade that is mindlessly becoming even more crowded.

In other words, capital allocation is no longer efficient and is no longer determined by fundamentals but by size. The result is that market participants are investing more capital in the largest companies due to increasing market concentration, even though these companies are no longer growing in line with the underlying fundamentals.

And that significantly worsens the other half of the investment scale: Your reward.

Valuation, Weight and Earnings Contribution of the Top 10 in the S&P 500:

Misallocation of capital leads to loss of sufficient diversification

I would argue that we are now approaching a level of market concentration – the top 10 stocks account for 36% of the S&P 500, the top 30 for almost half of the S&P 500 – that begs the question of whether pure low-cost index investing leads to a misallocation of capital and thus a loss of sufficient diversification.

Let me explain my point of view:

1. The top names in the index all have common characteristics. At the end of the day, it is a single investment. Technically speaking, it is an investment in the «size» factor, as you only allocate your capital disproportionately to the largest companies. And many market participants have only recently started to flock to this segment because their commitments have been passivated.

2. The majority are technology stocks whose relative returns are positively correlated with bond performance. Consequently, this also reduces the diversification benefits of balanced portfolios.

3. The rise of Nvidia. A large part of Big Tech’s capital expenditure (capex) goes directly to the semiconductor manufacturer for GPUs. This is reflected in the fact that almost half of Nvidia’s enormous revenues come from the world’s largest companies. The question remains whether 1) the substantial increase in Big Tech’s capex will remain so high, 2) whether we will see an increase in business from them due to this capex, and finally 3) if a very cyclical industry, i.e. semiconductors, will suddenly cease to be cyclical, which I doubt.

Given the last point, either Big Tech becomes a capex-intensive business model to stay ahead on the AI front, which is arguably net-negative for Big Tech, and Nvidia continues to benefit. Or Big Tech needs to reduce capex spending as it will take much longer for the significant spending to bear fruit - or so much capex is in effect simply not necessary - and Nvidia would collapse.

This is happening simultaneously while market concentration is increasing while their fundamentals cannot keep pace (divergence in weight of the top 10 in the S&P 500 vs earnings contribution of them). They are failing to keep pace, both relative to their own average valuation, i.e. we are seeing multiple expansion, and on an absolute level, as they simply have high multiples.

The relationship between risk and reward is out of balance. Buying into this constellation means facing higher risk (as of higher valuation and more uncertainty due to less visible and stable returns) and less reward (less upside potential due to high valuation and inflated expectations).

Your margin of safety has shrunk dramatically to a razor-thin line.

There is no room for disappointment.

A huge amount of Big Tech’s capex is going directly to Nvidia:

The Theory of Reflexivity

As you know, when it comes to investing, you also must be a bit of a philosopher. I would therefore like to introduce you to George Soros’ «Theory of Reflexivity», in view of the shrinking margin of safety due to the mindless allocation of capital in an ever-increasing market concentration.

According to the theory originally published in his book «The Alchemy of Finance» in 1987, market concentration in indices like the S&P 500 could be seen as a feedback loop that amplifies price distortions rather than purely reflecting fundamental values.

Reflexivity argues that market participants’ biases and perceptions influence both market prices and underlying economic realities, creating cycles of boom (rising concentration) and bust (falling concentration). This theory applies to situations where excessive focus or investment in a small number of large companies distorts broader market behavior.

Here’s how this could apply to the current situation of market concentration in indices like the S&P 500:

1. Feedback Loop of Rising Prices and Perceptions: The concentration of the S&P 500 in a few tech giants (Apple, Nvidia, Microsoft, etc.) drives their stock prices up as demand from investors and passive strategies increases. As their prices rise, their weight in the index grows, attracting even more capital, creating a self-reinforcing cycle. Soros would argue that this leads to prices deviating from intrinsic values, inflating these stocks.

2. Mispricing and Market Distortion: High visibility and past performance of these companies can make them appear safer or more profitable than they are, leading to mispricing. Their concentration creates market vulnerability, where a negative event can have a significant impact on the broader market.

3. Boom-Bust Cycles: Reflexivity suggests this process leads to boom-bust cycles. Investor optimism drives prices up, but a sudden shift in sentiment (due to factors like interest rates or earnings) could trigger a sharp market correction, with major stocks dragging the whole market down. I recommend you reading a similar memo by Howard Marks, «Taking the Temperature,» highlighted by The Market, in which he addresses this issue as follows: «Understand that cycles arise from what I call ‹excesses and corrections›.»

4. Passive Investing and Market Concentration: The rise of passive investing, through index funds and ETFs, reinforces this reflexive cycle. Since passive investors allocate funds based on market capitalization, not fundamentals, the gap between price and intrinsic value widens.

5. Potential for Market Imbalance: Soros would likely view the current concentration as a sign of potential market imbalance. According to reflexivity, markets may not correct quickly, and such imbalances could persist until a major event triggers a sharp correction.

In conclusion, according to George Soros’ Theory of Reflexivity, the current concentration of wealth and investment in a small number of stocks within indices like the S&P 500 could lead to a self-reinforcing cycle that drives prices higher in a way that detaches them from fundamentals.

This potentially leads to increased volatility and the risk of a sharp correction.

The Stock Market Cycle Chart with Emotions:

Risk/Reward Shifts Unfavorably for the Index Holder

Let us now turn to the question of how we can tackle this problem as investors. In my last article on market concentration, I made two arguments:

«While I do not believe there is an ultimate limit to the degree of market concentration, I do believe there is a limit. The addressable markets are only so big, the global economy is only growing so fast and regulation is a constant threat to the world’s largest companies. There is no way around it: The historic level of equity concentration that we find today makes the investment environment difficult.»

and:

«We are therefore convinced that pure indexing of the portfolio will lead to mediocre returns and that after a flood of money over many years and historically high concentration, dispersion will increase, and the alpha opportunity will strengthen. This is also reflected in the best periods for stock picking in the 1970s and after the Dotcom crash.»

In the meantime, Counterpoint Global from Morgan Stanley headed by Michael J. Mauboussin addressed the «Stock Market Concentration – How Much is too Much» in his typical sharp mind and clean data.

The following chart «shows the returns of the S&P 500 when stock market concentration goes from a trough to a peak and from a peak to a trough. The total return for the recent rise starting in 2014 goes through 2023, as the peak has yet to be established. The market tends to produce returns above the historical average in periods when concentration is rising and returns below the average when concentration is falling. The S&P 500’s compound annual total return over the full period was 11.4%.»

S&P 500 Annual Returns During Rising and Falling Concentration, 1950-2023

I would like to draw your attention to the sharp rise in the 1990s and the subsequent correction from 2000 to 2013, which were extraordinary. Of course, this goes hand in hand with the cycles of underperformance (rising concentration) and outperformance (falling concentration) of active fund managers and equally weighted indices, respectively, who typically construct portfolios with an average market capitalization smaller than that of their benchmarks.

As I said earlier, there may not be a definitive limit to the degree of market concentration. But if history is any guide, the risk/reward ratio shifts unfavorably for the market-weighted index holder. This is true both on an absolute level, i.e. lower future returns, and on a relative level, i.e. a much higher potential for larger capitalized companies to underperform smaller companies.

Investors face the daunting task of channeling new funds into an increasingly unattractive market.

It is time to rethink your allocation.

You want to have a better performance than the crowd?

Historical patterns and research support our view that the time has come when, for the first time in years, the largest stocks have at least as much downside risk as upside risk. At arvy, we advocate proactive action by investors to address the increased risks of concentrated portfolios.

Yes, it takes some stamina to sustain a move away from market cap weighted indices, but one will inevitably have to admit that as an investor you are just following the crowd, knowingly taking the above risks and acting conventionally as this is unfortunately the way to go in the financial industry.

The answer to the simple question: Do you want to perform better than the masses?

Do things differently than the masses.