Passive Investors are buying a SpaceX IPO every month in US equities.
If you want to know more about those trends, public companies, ask us. You must understand your addressable market.
If Blackrock et al are pumping $75 billion per month into US stocks, the market should be even higher. ETFs are approaching $16 trillion of assets and monthly creations/redemptions are nearly $1.2 trillion, with a net positive over $100 billion, says the Investment Company Institute.
I don’t care who you are, that’s a lot of money.
Meanwhile, Active managers lose half a SpaceX IPO to redemptions every month, and less than a quarter of them are beating the benchmark, assuring that the trend shifting money from Active to Passive will continue. Morningstar data indicate that Active AUM are down to 36% of the total.
Yet we’re led to believe all day long, everywhere, in everything said and written and spoken, that the market is led by fundamentals. Would that it were, as John Kerry would say.
Side note: If those things drive stocks, why do patterns in the market repeat predictably no mater what headlines and fundamentals do (like today – Broad Sentiment already peaked as Mideast tension flares)?
Models include fundamentals, yes. The S&P 500 is a quantitative screen for quality.
So, if Passives are pumping capital into the market, why would stocks decline at all? Broad measures are at all-time highs, yes. But stocks aren’t. Half the entire Tech sector is in a bear market. A chunk are down 50% or more.
Let’s do some math. Actives sell $35 billion monthly. Outflows mean you sell things. You’ve got retirement-account required minimum distributions equaling billions monthly.
And half the volume is short. If you’ve never heard me say it, you’re new to the ModernIR blog. Under Reg SHO, the Alternative Uptick Rule, brokers buying and selling in the market don’t have to locate shares to short.
The stock market trades over 20 billion shares, about $1.2 trillion of dollar-volume, daily — twice as much as in 2024, just two years ago. And about 50% of that is Short Volume.
That means brokers are continuously shorting and covering in 400-millisecond horizons. There are 4,900 ETFs, about 3,000 stocks behind 99.9% of market cap, and something like 1.5 million options series. Just four proprietary-trading firms chasing spreads among those and going long and short made $100 billion last year.
That’s an outflow. Summing up, the answer to why the market falters is arbitrage and shorting. I think these two consume a mind-boggling part of returns.
Plus, a Prediction Marketplace betting on every outcome reflects surprising cynicism. We used to consider “gambling” a morally ambiguous pursuit. Now everybody offers it. In fact, Kalshi and Polymarket are eating into government lotteries funding education programs. Where’s the outrage?
A couple years ago, I hooked up a hose outside for the first time in the spring and turned on the water supply and squeezed the handle on the sprayer and a dribble came out.
I thought, “That’s not right.”
And suddenly my gut clenched and adrenaline pumped.
Leak!
I rushed to the valve and killed it and raced to the basement and it was awash in water coming out of the ceiling. Over the winter, the valve had frozen and broken and I’d sprung a subterranean geyser.
The stock market has a bunch of leaks.
We just aren’t aware of them because the pounding AI trade has obscured them. But I’ll say again: An entire generation that wants to make binary bets instead of investing for the long run is a leak.
I do not know when the water comes pouring from the ceiling, requiring a big cleanup and fix. but I’m in the quantitative data business. When there’s a lot of money flooding into the hose but not so much making it out the nozzle, watch out.
We measure behavioral change. What kind of money is waxing or waning (coming or going), and what relationships and patterns consequently manifest? And then we track total behavioral change and positive behavioral change.
Routinely now they’re the same, meaning standard deviation is zero. What might that mean? Well, it would suggest binary bets zeroing out.
And that relationship costs money. There is no such thing as two winners in a knockout round in the World Cup, and no such thing as two winners in a yes/no bet.
I find these things fascinating. I also cannot imagine trying to navigate the market without understanding Demand and Supply, investors, or behavioral patterns, public companies. Both of these are near-realtime predictive signals of what’s coming.
Right now, the Demand/Supply relationship in S&P 500 stocks is nearly identical to what it was Oct 8, 2025. Might be a meaningless coincidence. Might not.
See you next week.
