Breakout or Breakdown? The Three Market Signals Everyone’s Ignoring
As U.S. stocks post their strongest May since 1990, the smart money is watching three market “tells”—not headlines. Treasuries, the dollar, and fund flows are signaling something big is brewing beneath the surface.
Jun 1, 2025
The Market’s Tension Point: Euphoric Highs, Bearish Lurking
If you only looked at the S&P 500 this month, you’d think risk was dead and the only direction left is up. May 2025 just logged the best month for U.S. stocks in 35 years, with the S&P 500 up 6%—but behind the scenes, volatility, fund flows, and real yields say the party may have an ugly hangover.
What Matters Now: The 3B’s (Brokers, Banks, Bitcoin)
According to Bank of America’s Michael Hartnett, the three “risk tells” are brokers (XBD index), banks (IXG index), and Bitcoin. A “double top” in all three would be deeply bearish, while clean upside breaks signal further euphoria (ZeroHedge).
But under the surface, the real story is the U.S. dollar. The DXY has now put in its fifth monthly decline—the longest losing streak since 2020. Markets are openly “whispering” about a dollar bear market.
Fund Flows: Chasing Gold, Bitcoin, and U.S. Equities
The biggest money is rotating out of global equities and into “weak dollar” plays:
Bitcoin just posted its largest ETF inflow ($2.6B) since January
Gold: $1.8B weekly inflow, annualizing to a record $75B YTD
Emerging Markets Debt: Largest inflows since Jan 2023 ($2.8B)
Japan equities: Record outflows ($11.8B), while U.S. stocks see relentless foreign demand
Foreign investors have poured $350B into U.S. equities and $200B into U.S. bonds since 2020—and even in 2025, foreign inflows to U.S. stocks are running at the second-highest annual pace ever ($138B) (EPFR/BofA data).
Defensive Stocks Vanish, Bubble Mentality Surges
Defensive allocations (healthcare, staples, utilities) are now just 18% of the S&P 500, the lowest since 2000. Meanwhile, the “Magnificent 7” (top U.S. tech) trade at 42x trailing P/E—an echo of previous bubbles, but the data shows equity bubbles can stretch further, historically up to 58x P/E and +244% gains before popping.
The Gamp Sheet Angle: The Real Macro Tell Is the Dollar
Here’s the core insight:
Weak dollar = “buy gold, buy Bitcoin, buy emerging markets”
Strong dollar = risk-off, unwind the carry trade
The fact that the U.S. dollar can’t catch a bid—despite tariffs, U.S. outperformance, and global uncertainty—shows just how leveraged this market is to risk-on sentiment and Fed liquidity.
If the dollar breaks lower, commodities, crypto, and international stocks will fly. If it snaps back, brace for pain across all asset classes.