Stage 16 of the Tour de France yesterday raced up Provence’s forbidding Mont Ventoux, and nobody displaced the wearer of the Maillot Jaune, the yellow jersey, Tadej Pogacar (po-GOT-cher), the Scottie Scheffler of cycling.
I rode Mont Ventoux in 2013, a long leg-burner from the village of Bedoin to the moonscape marking yesterday’s stage finish. In June that year, the previous season’s chalked battle cries still adorned the tarmac – Allez, allez, allez! (Go, go, go!)
The stock market has been like Mont Ventoux: a steep, unremitting ascent. Unlike Mont Ventoux, the summit isn’t stark. Spencer Jakab summed it up bemusedly yesterday in his WSJ Heard on the Street column titled, “Why are Stocks Up? Nobody Knows.” (Subscription required.)
And weird stuff is happening.
Did you see Opendoor (OPEN)? And Kohl’s? KSS was volatility-halted up more than 100% yesterday for no apparent reason. In the data, Fast Traders buying retail order flow are up 37% over long-run averages. In OPEN, a huge orange Fast Trading pattern dwarfs the rest Jul 11-21.
They’re meme stocks. People have gotten complacent, Pandemic-style.
Homebuilders D.R. Horton (DHI) and Pulte (PHM) were up 17% and 11.5% yesterday on results. Yet if anything the bloom is off the real estate rose. In Denver and Steamboat, sales data are punctuated by price-cuts. The stocks rose because data at earnings is an arbitrage tool.
Anything tradeable will be traded. Chase the price of KSS with market orders and Citadel will fill them to the limit-up/limit-down volatility girders, and then whoever bought last gets crushed. At 930a ET, KSS was at $19.47. At 955, it was $12.66.
The market is a study in its construction. ETFs dominate. They need stocks that track the benchmark, which are stocks whose derivatives underpin the futures contract representing the index.
It’s self-fulfilling. Ninety percent of ETF assets are in large caps. As ETF assets grow, money needs more of the same thing, and it seeks out stocks tracking the benchmark. Which are the same stocks.
Whatever is in the basket outperforms what’s not in the basket. That’s why the average component of the S&P 500 is still 10% off all-time highs as the benchmarks rack up new highs.
It’s why so many investors struggle to beat the benchmark.
Yesterday, I ran the data for the entire set back to Jul 2017 to see comportment between Demand tops and options-expirations. Options expired last week, new ones traded Monday, banks squared books on both sets yesterday and today is derivatives-free air, sort of.
Options-expirations are like roundabouts on the road. Traffic merges, patterns change. In the Tour de France, wrecks happen. Sometimes in stocks too. The past two weeks, our algorithms show the average S&P 500 stock is down about 1.2% on selling by indexes, ETFs and quants.
Yet the S&P 500 closed at a record yesterday, powering on like Tadej Pogacar, up a seemingly insurmountable four minutes-plus on nearest rival Jonas Vingegaard.
Are we summiting Ventoux, or settling in for the climb, or zipping our jackets for the heart-pounding descent? There are table-pounding bulls. Wary watchers for canaries. Technicians saying the trend is unrelenting like Ventoux.
Nobody knows.
At ModernIR we compared Mar 3-Apr 8, 2025 data to what’s happened since, as the S&P 500 has risen 27%. Behaviors are the same. Money rode up and down without changing, without entering the roundabout.
But something did change.
There’ s a 40% drop in volatility, a 20% increase in Short Volume. Mash those together and stocks are up 27%.
It means 74% of the market’s gain from Apr 8 is artificial liquidity. Short Volume is mostly stock created under market-making exemptions to short-locate rules. You could call it an increase in the money supply, or inflation.
And spreads narrowed, bringing volatility down. When stocks rise, machines consume the spread between the bid to buy and offer to sell by buying from sellers and selling to buyers in fractions of pennies that steadily move closer.
The two are related. More liquidity from artificial shares narrows the spreads too.
When the gap is gone, the trade ends. And so does the ascent.
I loved my exhilarating descent off Ventoux to picturesque Sault at speeds over 80km/hr. We’ll have one in the market too.
It’ll happen when there’s no spread for machines to consume. Looking at how stocks are moving lately throughout the day and how they close, the spread is thin. It’s 0.7% in SPY, barely half the 1.2% 200-day average.
Other than that? Nobody knows.
