I believe most market participants currently recognize that U.S. equities are at an extremely delicate point of equilibrium.
Technically, the S&P 500 has already fallen below its 20-day moving average, and bearish sentiment has intensified sharply. At the fundamental level, however, the fragile balance among U.S. Treasuries, U.S. equities, confidence in the U.S. dollar, and inflation expectations remains unchanged. The Treasury’s expansion of its long-term Treasury buyback program may appear to stabilize the market, but in the face of rapidly rising debt and elevated interest costs, the measure looks more like an attempt to buy time than to solve the underlying problem.
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Be careful: the upcoming Jackson Hole symposium and Nvidia’s earnings report are the two major events that could determine whether this balance breaks over the next week and force the market to choose a direction—higher or lower.
The Limitations of the Treasury’s “Rescue”
According to Bloomberg estimates, the U.S. Treasury has just announced an increase in the size of its long-term Treasury buybacks: at least USD 2 billion more per operation. On an annualized basis, this amounts to additional purchases of roughly USD 70 billion, equivalent to reducing the supply of 20- and 30-year bonds by approximately 16%. Goldman Sachs estimates that these buybacks will absorb close to one-third of long-term bond issuance.
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This may look like a move resembling quantitative easing, but compared with the pace of debt expansion, it remains a drop in the ocean. According to data released by the U.S. government, it recently took only 95 days for government debt to increase by USD 1 trillion, implying an average daily increase of more than USD 10 billion. Total debt has only recently crossed USD 40 trillion, whereas it reached USD 30 trillion in January 2022. Interest payments in 2026 have already exceeded USD 1 trillion. At the current pace, total debt could very likely reach USD 41 trillion or more—the statutory debt ceiling—in roughly the next five months:
More importantly, the funds used for the Treasury buybacks come from the Treasury General Account (TGA). Using cash in the account to repurchase bonds means that policy initiatives during the upcoming midterm-election period may still require continued financing. Unless the United States can propose genuinely workable plans to raise taxes and cut spending, further debt growth will be difficult to avoid. In particular, the upward pressure on long-term Treasury yields cannot be fundamentally eliminated.
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Therefore, the greatest significance of this buyback program is that it tells the market the government is not standing idly by. However, it is far from sufficient to dispel concerns about rising yields. In a sense, it also exposes the government’s limited policy tools for dealing with a loss of control over long-term yields. Market concerns about the creditworthiness of dollar assets and the supply–demand balance in U.S. Treasuries have not disappeared.
Why I Remain Bearish on U.S. Equities
The S&P 500’s break below its 20-day moving average is the market’s most direct technical warning at present. If this breakdown is confirmed this week, the market could trigger the so-called U.S. equity “curse” associated with the four months—February, May, August, and October—that are historically prone to major volatility. Even if volatility is not fully released immediately, the risk could be postponed and concentrated in October. Overall, U.S. equities remain in a high-level, range-bound, bearish configuration, with less upside potential than downside risk.
Why do I say this? Because high yields remain a weight pressing on richly valued U.S. equities. The 10-year and 30-year Treasury yields remain in elevated bullish trends, while the 30-year yield is still above 5% and has not broken below a key level. As long as this yield fails to decline meaningfully, the risk premium on long-term bonds will continue to compress equity valuations, providing a rationale for selling U.S. equities at elevated levels.
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Institutional positioning also supports this assessment. Data from Goldman Sachs’ prime brokerage showed that hedge-fund gross leverage rose by 1.5 percentage points last week to 205%, while net leverage declined by 3 percentage points to 48.3%, the largest weekly decline in nearly five months.
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This means that overall risk exposure has not contracted significantly, but net bearish bets are expanding. Macro products—that is, indices and ETFs—accounted for 47% of total net selling. Nine of the eleven sectors recorded net selling, including information technology, industrials, utilities, health care, and materials:
When institutions do not increase positions to chase the rally following the Treasury’s buyback program, but instead shift toward more defensive allocations, the market’s vulnerability at elevated levels deserves close attention.
Warsh’s Dilemma at Jackson Hole
One of the most important variables this week is Kevin Warsh’s communication on monetary policy at Jackson Hole. The problem is that the balance between U.S. Treasuries and U.S. equities is already extremely tense. A hawkish statement, a dovish statement, or even an ambiguous one could become a catalyst for a market decline.
If Warsh sends a hawkish signal, short-term rates rise and expectations of rate hikes increase, directly pressuring equities. If he leaves rates unchanged or adopts a dovish tone, short-term yields may decline, but the market may then worry that inflation is not under control. Long-term Treasury yields could rise as inflation expectations increase, causing the yield curve to steepen further. Even if Warsh avoids making an explicit statement, the lack of policy guidance could likewise prompt a flight to safety.
The logic is straightforward: long-term Treasury supply is increasing while demand is insufficient, and the fiscal deficit is rising. At the same time, technology companies are issuing large amounts of debt to finance AI infrastructure, causing corporate bonds and government bonds to compete for funds in the same market. Long-term bonds are more sensitive to inflation and interest rates. Once investors begin to question the Federal Reserve’s ability to control inflation, long-term bonds can easily become the first assets to be sold.
Therefore, the key issue at this meeting is not simply whether rates will be raised. It is how the market will reprice short- and long-term yields. Whichever end of the curve moves higher, it will not be good news for U.S. equities at elevated valuations.
Do Not Chase Gold Higher
Gold’s advance has exceeded my previous expectation of a roughly 10% rebound. After gold futures reached a high of 4,750, prices accelerated rapidly from the bottom and have already gone through three acceleration phases. There is a risk that upward momentum is becoming exhausted, so a technical top forming in the short term would not be surprising.
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At the same time, the stock market’s break below its 20-day moving average indicates that risk appetite is weakening. Although gold has safe-haven characteristics, it can also be sold when sentiment toward risk assets deteriorates, as investors take profits and reduce overall risk exposure. Positioning also warrants caution. Goldman Sachs data show that CTA funds have shifted sharply into net long gold positions:
The positive-convexity impulse previously generated by CTA funds moving long has largely been released. Given the near-vertical increase in positioning, the risk of a reversal is rising. The CFTC report also indicates that non-reportable speculative traders have substantially chased the rally. Historically, similar situations have often been accompanied by a short-term corrective decline in gold.
Accordingly, the more appropriate strategy at present is to wait rather than chase prices higher. Over the longer term, if gold retreats from elevated levels to lower levels, it may once again offer an opportunity to move higher.
Strategy Discussion During Consolidation
Before the Jackson Hole meeting concludes, U.S. equities will most likely trade sideways around the 20-day moving average. The meeting’s outcome and the S&P 500’s weekly closing pattern will determine the direction for the first week of September. There is no need to rush into a one-sided position at present. More importantly, investors should respect key levels and risk boundaries.
Strategy 1: Leave approximately 6% of downside room from elevated levels and use that room to sell puts with lower strike prices, collecting time value. As an example, for QQQ, put strikes below 661 may be considered as a reference. The premise of any short-option strategy is strict stop-loss discipline. Once the price breaks decisively below the strike price, the risk exposure must be managed promptly.
Strategy 2: Continue considering the sale of gold puts to collect time value. The area below the 20-day moving average of the continuous gold-futures contract—approximately below 4,413—may be used as a reference zone for weekly put strikes. Stop-losses should be implemented promptly if the price falls below the strike price.
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