INSIGHTS
By
Kris Wild,
Chief Investment Officer
Jun 30, 2025
The market is breaking out, and the pain trade is in full force. Skeptics are being left behind as momentum builds. With risks fading and flows surging, missing out is no longer an option. July could be calm—or the start of something bigger.
Intro
Markets have spoken, and it seems like you really can’t keep this one down. Swinging for the fences and back-to-back all time highs, the thundering herd is in breakout mode. This latest extension move higher over the past month was a story of flows, falling yields, AI leadership, geo-political risks fading away, Federal Reserve rate cut speculation and the ever increasing good news drip on tariffs and trade. This market is pricing in perfection, and missing out is becoming too painful to ignore. Welcome to the Pain Trade.
The first rule of trading is that price moves first. Ignore this at your peril for when the herd moves, it’s often safer and more profitable to tag along than to overthink it. There is safety in numbers, and in June, there were returns too. The S&P500 gained 5.2%, the Nasdaq surged 6.56% and even the Russell 2000 notched a respectable 5.3%. It’s been a season of unbothered gains, can anyone even remember what the fuss in April was all about, or the Iranian missile diplomacy we engaged in, courtesy of precision guided Massive Ordinance Penetrators.
Somewhere between the Federal Reserve’s intentional ambiguity, Trump’s hot-potato tariff routine, collapsing volatility, and a softening dollar, we all just turned our heads and shrugged. The real uncertainties haven’t gone away—we’ve simply tuned them out, the way freshmen ignore fire alarms during orientation week. This market has grown comfortable—maybe too comfortable, maybe not. As unbelievable as it may seem, with all major U.S. indices flashing signs of being overbought and showing some fatigue, there may still be silver linings left to shine through in July.
I. The Summer of Complacent Success
Enter the term du jour: the Pain Trade.
Coined by traders who find themselves forced to chase what they didn’t believe in, the phrase describes exactly what’s happening: a market melt-up built on skepticism and the willing suspension of disbelief, and now funded by money that thought it would be elsewhere.
Quantitative funds, we are told, are mechanically pouring billions into equities, forced to chase upward momentum they didn't trust when it started. According to MarketWatch, a surge in trend-following and risk-parity flows has created a technical vortex equity exposure begets equity strength, and the S&P 500’s flirtation with new highs functions as both signal and siren. From up here, at altitude, the view is surreal. It's a tale of two cities: booming asset prices and lower interest rates on one side, macro ambiguity on the other. No one’s asking for a return to VIX 64, but a pause, some honest consolidation might be nice. Of course, these flows tend to be hot money, and when they reverse, they don’t tiptoe out. They bolt. The self-fulfilling nature of that unwind is the part no one wants to talk about until it’s already happening.
II. The Goldilocks Narrative: Lukewarm and Loving It
Citadel Securities’ latest macro note reads like a bedtime story: inflation’s down, jobs are solid, and central banks turning into waiters, hovering near the data, but not serving up anything too spicy. They call it a “Goldilocks Summer”, which is another way of saying: not too hot, not too cold, and just uncertain enough to keep Powell off the podium.
PIMCO, that bastion of long-duration clarity, echoes the tone in its “Balancing Act” update, urging portfolios built on duality resilient yet risk-aware, diversified yet opportunity-seeking.
BlackRock and State Street also join the chorus: stay long equities, particularly quality names. Both highlight the surprising durability of earnings and the quiet tailwinds of policy stability, even as Congress and the White House cosplay dysfunction, we are at least seeing some method to the madness, and they are delivering on what 80% of corporate CFO’s want: More Fiscal Stimulus. And should it be delivered, we agree, that this is a long positive for the market and brings down tail risk. What the bond market does with that news though could precipitate at least a mini-tantrum or two. We will be watching for further steeping in the long end of the curve and spread between 30 and 10 year treasuries.
III. The Discomfort of Being Right (Too Early)
Of course, none of this feels comfortable. Because we’ve seen this movie before. And we know it ends with something unexpected ruining the third act.
Morgan Stanley calls it “the pain trade in full bloom.” Even as valuation multiples stretch (FactSet now pegs the S&P at 21.9x forward earnings) investors keep piling in. Why? Because what should have stopped this rally, rate volatility, weaker consumer spending, weaker job growth (look at the revisions in NFPs for the last three months), geopolitical drama, earnings stagnation and downward revisions simply hasn’t. Instead, each "headwind" has morphed into a tailwind through the alchemy of market psychology.
As Quant Insight noted on June 26, macro signals like real yields, FX volatility, and credit spreads continue to point to a risk-on environment. The inputs are fragmented, but the outcome is shockingly cohesive: higher equities, lower volatility, and vanishing hedges. Dealers trying to stay delta neutral are buying the market as demand for long call options grow, which reinforces the risk-on feedback loop and pushes equities higher.
IV. Under the Surface, a Stirring
Yet the market’s exuberance isn’t costless. The 10-year Treasury yield’s recent retreat has created an illusion of easier financial conditions, even as liquidity in global credit markets begins to show strain. The dollar, for its part, has weakened, welcomed by emerging markets and leveraged carry traders, but quietly signaling that U.S. macro strength may be waning.
This softening greenback framed by Morgan Stanley as the start of a 9% drawdown cycle adds complexity. Is it a technical correction, a foreshadowing of trends to come, or a realignment? More data is needed to confirm any one of these possibilities, so we’ll just take it as a boon for equities and corporate earnings that will benefit from FX translation and more competitive US exports.
V. The Euphoric Grind
And so, the market advances.
PIMCO urges discipline. State Street urges quality. FactSet shows better-than-expected earnings trends. BlackRock tells investors to lean into momentum. And everyone agrees: this is not the time to bet against momentum, even if it’s built on momentum itself.
The “wall of worry” is no longer something to climb it’s something to ignore. And in that ignorance lies strength. Or hubris. A line that is blurring in real time. We believe that most of the uncertainty over the month of July is front loaded, with a huge macro data deluge on July 3rd and the ending of the trade détente on July 9th. We should know in pretty short order if the all time highs will anchor traders and investors to new levels of support or mark the start of consolidation.
VI. July: The Return of the Real
All of this, of course, sets the stage for an interesting July. For volatility, for revaluation and for a possible reality check.
Between upcoming CPI prints, the formal review of reciprocal tariffs, and a potential uptick in geopolitical noise, July could test everything June ignored. Liquidity historically thins this month and earnings season will crystallize potential trends in consumer spending weakness and higher OPEX, both a risk to margin expansion and earnings multiples. And the trade that felt easy may suddenly feel crowded. Last month we announced that we were trimming the sail on some of our equity positions, we will be using July to continue selling into strength.
We remain invested. But not overexposed.
• We are keeping our core exposure but trimming around the edges.
• We’re also lowering duration and moving further into EM credit boosted by dollar weakness
• We’re also looking at buying short term protection in the form of inverse ETF’s on the S&P500, especially around the July 9 tariff announcement.
Conclusion: The Pain Trade, Perfectly Executed
If June was the embodiment of the Pain Trade, then it was a masterpiece of market pathos, a rally no one believed, driven by fast money that didn’t want to be there, sustained by conditions that weren’t supposed to hold.
There’s a kind of cynical elegance to it all. A rally that punishes doubt. A market that rewards complacency. A regime that processes dysfunction like a spreadsheet, efficiently and entirely without concern.
But this, too, is a cycle. We don’t know where in the cycle we exactly are, be we are expecting July to be the litmus test for where we are going and will likely set the tone for what’s to come.
And yes, the Pain Trade may still be higher. But we suggest holding your applause. The second act begins soon.
