This is a fast and furious recovery phase, exacerbated by technicals like systematic investor and hedge fund positioning.

Investors outside fast money have done very little, which is a good strategy for geopolitics.

Normally you buy a dip for three reasons: valuation flush (didn't happen), macro improvement (things are still getting worse), or the original problem getting better (Iran war relief). The rally is based on the third reason.

There are multiple disconnects: energy prices haven't come down much, credit has lagged equities, and the rates market has not retraced much.

Equities are the fastest moving asset and more exposed to AI, which helps them relative to credit.

For the rally to resume, we need central banks to shift back to being dovish and for rates to provide relief.

If rates stay where they are, it will be more difficult for equities to resume the uptrend because the equity risk premium is lower.

If inflation is above 3% and keeps rising, it's a very unfriendly cluster. Central banks can look through a supply shock if it reverses, but if oil prices stay high, they need to tread carefully.

We've seen multiple central bankers starting to pivot dovish, hoping the Middle East war ends.

CTA buying is starting to moderate. Hedge fund net leverage is still quite low; they have capacity to re-risk a lot more.

They retraced about a third of their de-risking decline.