Volatility vanishes as S&P 500 avoids 2% drop for 107 straight days

The S&P 500 just broke a ridiculous streak: 107 straight trading days without falling 2% or more. That’s the longest run without that kind of drop since July 2024.

Not even April’s tariff circus dented the rally. Since then, the index has jumped 34% and tacked on nearly $16 trillion in market value, based on Bloomberg’s numbers.

The rally’s been fueled by blind momentum, even while risks pile up. Inflation’s still sticky. The U.S. job market’s cooling.

Jerome Powell warned Tuesday that the road ahead will be tough and rate cuts might not come easy. The market dipped, but nothing dramatic. The S&P 500 hasn’t seen two back-to-back 1% drops in over five months. Investors just keep ignoring bad news.

Traders ignore Powell’s caution and pour billions into stocks

“There’s a lot of willingness for investors to shake off any bad news, for now, but complacency is a risk to the stock rally,” said Julie Biel of Kayne Anderson Rudnick. She added, “If inflation rises more than traders expect in the coming months, that may force the Fed to not cut rates as much as investors hope.” Basically, hope is driving this market, not logic.

Even the highest unemployment rate since 2021 didn’t shake anything. The S&P 500 has hit 28 record highs this year through Monday. Powell sounded cautious again this week, but traders don’t care. They’re almost fully pricing in a 0.5% rate cut for 2025. And they believe the worst of Trump’s trade policies are over. Throw in some AI profit hype, and boom, stocks fly.

Bank of America and EPFR Global said fund managers dropped nearly $58 billion into U.S. stocks during the week ending September 17, the biggest inflow this year. Traders are acting like rate cuts are guaranteed. The risk is that the Fed dials back expectations and Wall Street gets blindsided.

Short-covering and VIX bets show risky optimism building

September typically drags for stocks. Not this time. The S&P 500 is up 3% so far. Goldman Sachs’ basket of the most shorted names is up 14%, heading for its best September since 2010, as data shows that this is likely a wave of short-covering as investors scrambled to reposition before the Fed’s latest rate signals.

Goldman’s short basket now sits at its most overbought level since early 2021, the height of the meme-stock chaos. Back then, Reddit traders sent junk stocks flying for no reason. That kind of overheating usually leads to a pullback.

VIX is another story. The so-called fear gauge is sitting well below its 10-year average and under the key 20 level, a line that usually triggers nerves. Traders are acting like nothing can go wrong. The Commodity Futures Trading Commission said net short positions on the VIX hit 102,000 contracts through September 16. That’s close to August 2022 levels.

Chris Murphy of Susquehanna said the market might pause soon, but it won’t last. “There’s still a lot of room for the S&P 500 to still keep grinding higher,” he said. “Euphoric sentiment is nowhere near extremes and skepticism is pervasive. That’s a good thing for stock bulls.”

Unprofitable tech stocks are another piece of this mess. UBS said its basket of money-losing companies is up 21% since July’s end. The profitable tech basket? Up just 2.1%. Nasdaq 100? 5.9%. This group of speculative names (including SoundHound AI and Unity) is now near its highest level since late 2021. That was during the pandemic zero-rate boom before the bubble exploded.

But the rally isn’t bulletproof. The same unprofitable group dropped 2.1% Tuesday after Powell’s warning. Even with two more cuts, interest rates would stay above 3%, way above pandemic lows. That matters for these firms, because they run on borrowed cash and far-off profit dreams.

Goldman Sachs tracks a similar junk-tech basket that has nearly doubled since April. It’s now at its highest since February 2022. Names like OpenDoor, IonQ, and Lemonade have jumped between 50% and 280%. SoundHound and Xometry are also up big. But the size of this move still doesn’t match the 2020–2021 insanity, when the basket gained 420%, and lost most of it later.

Even now, Goldman’s tracker is 50% below that 2021 peak. Some investors think this surge is more rational. But if the economy slows down, these cash-burning firms will get crushed harder than their profitable rivals. For now, the S&P 500 keeps moving higher. But under the surface, the risks are growing.

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